When private investors contemplate backing a company trading on PLUS Markets, the immediate response from the experts is often negative. ‘The companies are all far too small’ is a common refrain. ‘There is no liquidity’ is another.

‘Too much risk, not enough reward’ is a third.

However, all the above criticisms could equally apply to AIM or to ventures on the SmallCap and Fledgling indices of the London Stock Exchange’s Offical List. And, just like AIM, you need to be very careful what you choose to invest in by screening every stock you come across with a rigorous eye. If you do this – and you can get past the fact that there is less investment choice in both size and quality – it is possible to make money on the market.

A typical example of success is China CDM Exchange, a PLUS-quoted venture that acts as a broker between Chinese companies generating carbon credits and the Western firms that wish to buy them. The company floated last July at 24p and now trades above 100p.

AIM ambitions
Moreover, many successful companies graduate to AIM. A year ago, unassuming cash shell Azurite Investments floated on PLUS with the intention of acquiring assets in the retail sector. It soon found itself some bargain-basement shops owned by Littlewoods and ascended to AIM in a £2.3 million float at 0.75p, quickly rocketing to 7p under the name of Hitchens Group.

After four years on PLUS, franchising star Myhome International, led by deal-hungry Aussie entrepreneur Russell O’Connell, moved to AIM and has since rewarded investors with fast-growing profits.

It is risky – that’s obvious
One admirer of Myhome is entrepreneurial stockbroker and PLUS aficionado Mark Watson-Mitchell, whose investment company-cum-corporate finance business Addworth has ‘made a nice profit of between £300,000 to £400,000’ on its Myhome investment.

He views PLUS as ‘an extremely useful place for the financing and development of early-stage companies’ and thinks there will be ‘300 companies quoted there by the end of the year’.

Watson-Mitchell does admit that the ability to buy and sell shares is a problem, but he brashly argues that ‘when more liquid markets such as the Full List and AIM have been impacted by recent economic turmoil, there is less impact here’.

He adds that PLUS continues to provide opportunities for investors to back small companies at a very early stage and simply says investors ‘shouldn’t put all their eggs in one basket’ and should be fully prepared ‘for the long haul’. He practises what he preaches, as the speculative company he runs, Addworth, has a portfolio stretching from uranium investor Yellowcake to socialite Tara Palmer-Tomkinson’s events business Three’s a Crowd.

It can be confusing
Elsewhere, Hong Kong businessman Johnny Hon (see page 19), who chairs PLUS-quoted Global Education and Global Entertainment, thinks some recent developments at PLUS have blurred the picture for potential investors. ‘PLUS needs to do a lot more work to make the exchange function properly,’ he argues. ‘There’s too much confusion and it needs to be simplified.’

He refers to the recently introduced names for PLUS’s entire business offering: PLUS-quoted, PLUS-listed and PLUS-traded. The former is the trading exchange that evolved from OFEX to host small, early-stage companies, currently around 220 in number.

PLUS-listed – only recently launched after receiving recognised investment exchange (RIE) status and so far without any listees – acts as a cheaper alternative to the London Stock Exchange for all companies accepted by the Financial Services Authority onto the Official List. As PLUS business development director Nemone Wynn-Evans explains, ‘It is an alternative to AIM for price-sensitive issuers that, by dint of the tax laws, have to be on the Official List, such as some investment funds. Not for a moment are we suggesting Vodafone is coming to PLUS.’

That said, the PLUS-traded mechanism was launched last year following an upgrading of the PLUS share-trading platform, with the new technology enabling a huge leap in the volumes of shares able to be traded. On a randomly selected day, 21 February, four of the top five shares traded by volume on PLUS-traded were FTSE 100 giants Vodafone, Barclays, Royal Bank of Scotland and Lloyds TSB, although Vodafone’s 3.4 million volume was but a small part of the 180 million shares traded that day.

Impressively, PLUS claims that volumes traded on the exchange grew by 92 per cent in January to 1.7 billion and, says Wynn-Evans, ‘At one point in January we had 50 per cent of the UK retail trading market.’ Significantly for private and institutional investors, the EU’s Markets in Financial Instruments Directive (MiFID) means stockbrokers are obliged to shop around for the best deals for clients, and the recent surge in volumes reflects the fact that, according to Wynn-Evans, PLUS ‘often offers better prices’.

The picture is changing for PLUS-quoted too. ‘A few years ago,’ she recounts, ‘nominated advisers wouldn’t return our calls. Now, we are being approached by nomads about whether a PLUS quote would better suit their AIM clients.’

A good first step
The final word is perhaps best left to an entrepreneur and PLUS investor, Graham Martin, chief executive of PLUS-quoted Gaming Ventures. He concedes that liquidity can be a problem, but he thinks the new technology on PLUS is changing this. However, he adds, ‘Although PLUS is a good first step, if you want to expand more rapidly AIM is better. We are happy to stay on PLUS, but we are in negotiations about several things that could lead to us moving to AIM, possibly by reverse takeover.’