Work cut out for new head of AIM
If Stuttard can improve the liquidity on AIM, we might look back on the current decline as a necessary evil to clear out some of its weaker companies
As a new head of AIM is appointed, James Hurley considers some of the brickbats aimed at the market.
Bob Dylan’s views on the UK’s leading junior market are uncertain, but if the head of AIM could choose any lyric to summarise his feelings about the media’s portrayal of the recent malaise in the market, he could do worse than Dylan’s “someone’s got it in for me, they’re planting stories in the press”.
“There have been an awful lot of negative stories about AIM and I think the motivation behind those stories has been a bit spurious at times,” Marcus Stuttard, appointed head of the junior market last week, told me.
“They’re often just motivated by a desire to get name checked in the press.”
I was speaking to him in preparation for an article on the future of AIM, which will appear in the forthcoming issue of Growing Business, on the shelves and online next week.
The articles he’s referring to have made reference to a combination of alarming indications about the health of the market, including a spate of delistings, which have risen by a third in the past year, a 62% fall in the shares on the market in 2008, and a worrying escalation of a perennial AIM concern, the lack of liquidity.
Stuttard told me the brickbats that have been directed at the market, while technically correct, are misleading and out of context. “The fundamentals are absolutely sound,” he said. “Everyone has been so used to reeling off the next record in AIM’s growth cycle for so long now, it’s become a bit of a shock that things can possibly downturn.
“It’s easy to forget that as recently as three years ago, AIM commentators were more used to reporting record levels of IPOs and unprecedented amounts of new and further money raised.”
Fair enough, but Stuttard will no doubt be alarmed by another negative story, this time in yesterday’s Sunday Times: “Doors are slammed shut no matter the quality of the company. For many firms, going public was meant to provide easy access to the capital markets but it has simply proved a costly burden – and critics are lining up to take pot-shots at London’s junior stock exchange.”
With the number of micro-cap firms on the market increasing, many are asking if the cost of maintaining a listing (generally in the region of £150,000 a year) justifies the benefits they receive from being on the market. With investor support difficult to find, share prices falling through the floor and liquidity virtually non-existent for many firms, the spate of delistings looks justified.
Stuttard accepts there is a problem with liquidity. As the Sunday Times noted: “It has been estimated that on any given day, up to 40% of companies on AIM don’t trade a single share.”
He outlines some of his ideas for improving the situation in the Growing Business article, chief amongst which is lobbying for regime change to allow VCTs to invest in the secondary market and in larger companies – a number of the criteria which allow VCTs to be able to invest in companies have been reduced, including the gross asset limit, from £15m to £7m, and restrictions imposed in 2007 mean that qualifying companies must employ fewer than 50 people and no more than £2m can be invested per company.
Good luck to Stuttard in lobbying for the much needed changes. If he can improve the liquidity on the market, when the upturn arrives, we might look back on the current decline as a necessary evil to clear out some of its weaker companies.