Falling stars?

Christopher Spink checks out the AIM graduates

AIM companies graduating to the main market are failing to deliver shareholder value

 share news from Growth Company Investor

Share news from Growth Company Investor on companies quoted outside the FTSE 250


Christopher Spink checks out the AIM graduates

AIM companies graduating to the main market are failing to deliver shareholder value

Christopher Spink checks out the AIM graduates

AIM companies graduating to the main market are failing to deliver shareholder value

Recent profit warnings and a string of poor results reported by companies which have transferred from AIM to the main market have raised questions about the wisdom of the move.

Former AIM companies Old English Pub Company, furniture retailer UNO, and, most dramatically, Network Technology, in the supposedly buzzing IT sector, have all seen their share prices spinning downwards. Our research shows that the majority of groups which have made the switch from AIM have underperfomed since joining the official list.

Most graduates join the main market on the back of a successful period on AIM. The facts bear this out. 46 companies have now moved from the junior exchange to the full list. And their share prices rose by an average of 158 per cent when on AIM.

However, since joining the main market the shares of these graduates have fallen back by an average of 14 per cent. Market conditions could explain much of this fall. Over the past year and a half shares in all small companies have been depressed. So this might mean these statistics could be slightly skewed and favour AIM – since more than half of the companies which made the move from AIM to the official list did so before this general downturn.

But still almost a third of the graduates’ shares now trade below their AIM debut prices. And very nearly two thirds are less than the price they were on leaving AIM for its elder brother.

The performance of Tracker Network is typical. During its period on AIM the car security specialist’s shares rose by a quarter. But the stock has come back by over a half since Tracker moved to the main market last April.

There may be general reasons why former AIM companies appear to perform worse on the main market.

Though a cliche, it is better to be a big fish in a small pond than a small fish in a big pond. AIM stocks, both good and bad, tend to get more coverage. The Stock Exchange has a marketing team dedicated purely to AIM companies. Stockbrokers and corporate financiers specialise in bringing firms to AIM and researching them.

Furthermore, many of these companies seem to have exerted themselves in an effort to join the full list which requires a three-year trading record.

This encourages AIM companies to focus on a three year business plan and a lot of effort can be expended in reaching this target. Then when the AIM company arrives at its chosen destination with new investors on board maybe directors take their eyes off the ball.

Should private investors interpret a move by a company to the main market from AIM as a signal to sell the group’s shares? Certainly it seems this is what some directors of companies which graduate plan to do, either because of necessity (to meet the requirements for shares available to the public) or because they want to.

Close Brothers’ Andrew Buchanan, manager of Beacon Investment Trust, thinks it is ‘far from clear that transferring to the full list has been beneficial to shareholders’. Private investors take note: an AIM company escalating to the main market is not the stairway to shareholder heaven.

Comments (0)