We are just entering what will be a vintage two years or more for AIM equities. Investors and companies should take note.
Back in July last year I expected our medium sized companies to gain in value and this January I pointed out that equities generally were returning to favour. After more than 13 years in the doldrums, the time has come to take The Alternative Investment Market, AIM, very seriously again.
AIM peaked in March 2000 as investors understandably took fright at the extreme valuations of many of its technology constituents. Since then the market “enjoyed” a period in the sun for its rather idiosyncratic mining companies but outside of those there has been “more activity in a tramp’s vest” as an old stock market adage has it.
Indeed, as I write this, the general perception amongst most of the financial and commercial classes is that tumbleweed is still blowing through the remaining 1,100 or so AIM companies. They couldn’t be more wrong. Here’s why.
Financial and political pundits still think everywhere apart from London is dead. Yet this week the Financial Times reported that one of Manchester’s largest estate agents is doing 45 per cent more transactions than a year ago; a Tyneside agent is twice as busy as a year ago and half of their customers are first time buyers.
“More people are saying, I feel a bit more confident in my job…the worst has happened and things are getting better,” reports another north east agent. That other big ticket item, new car sales, have grown steadily since early 2012 and last month they were nearly 15 per cent higher than a year ago. Of such things are bull markets made.
Initial Public Offerings (IPOs) and secondary fund raisings are also making a comeback. It is now commonplace for them to be materially oversubscribed and for these new shares to start trading at significant premiums. Last week on AIM, a new entrant called Quixant, which makes the “brain” inside some of the world’s gaming machines, raised £4.5m on a valuation of £30m at 45p a share. At the time of writing Quixant is trading at 78p.
On Wall Street, where most trends are born, investors have put £432m into ten biotechnology new issues with the result that such companies are taking the IPO route at the fastest pace in nearly a decade. This is a clear demonstration that the appetite for equity risk capital has come to life again.
All of the above are the kind of things that signal a bull market but we are only at the start. There have been no new AIM investment vehicles offered to the public for ages and the way the financial world works means that no serious ones will be launched until the first new wave of investors have demonstrated they are making big capital gains. Indeed, many of the old surviving so-called small company funds, such as Henderson Smaller Companies Investment Trust, are still content to park much of their firepower in companies capitalised around the £1bn mark!
I have been active in AIM since it started in 1995 and small company equities before that back to 1979. I have never been more confident that the ingredients are in place for these companies, as personified by AIM, to rise very substantially in value over at least the next two years. I wish you happy hunting!
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