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Aim’s quality companies prove a bigger draw

17th April 2010, Financial Times (Money),

The Alternative Investment Market is seeing renewed investor interest, say Ellen Kelleher
After returning an impressive 66 per cent in 2009, shares on the Alternative Investment Market (Aim) are seeing renewed interest from private investors seeking the chance to make further gains – and shelter them from inheritance tax. Companies are also returning to Aim to raise funds. A flurry of companies offered shares on Aim in the first three months of the year – ranging from Bellzone Mining, which raised £33.6m to develop an iron ore mine in Guinea, to CSF Group, which supplies data centres to Malaysian companies. In March alone, the four initial public offerings – from Emis, CSF, Sherborne and Digital Barriers – raised a total of £203m, well up on the £19m raised in February and the £14.4m in January. Analysts say that this uptick in enthusiasm confirms that Aim is still a sought-after launch pad for companies looking to raise capital – in spite of its patchy performance of late. Aim outperformed the wider UK market by a significant margin last year, but over five years it lost 34 per cent while the FTSE 250 rose 44 per cent.
Azhic Basirov, head of capital markets with advisory firm Smith & Williamson, says: “The Aim market, as a whole, hasn’t been performing too badly, certainly compared with other stock markets around the world. Aim was one of the best-performing markets last year.” Although the appetite for share issues remains weak elsewhere, Aim companies also raised more than £4.7bn through secondary issues last year – a 50 per cent improvement on 2008, according to financial advisers Baker Tilly. At the same time, the size of the companies listed on Aim has been increasing. Statistics from London Stock Exchange show that, at the end of March, there were 160 companies with a market capitalisation of more than £100m, compared with only 77 at the end of 2008. This has been partly due to some smaller companies leaving the market. Last year, 293 companies left Aim, including many towards the bottom end of capitalisation scale. As a result, by the end of March, there were only 122 companies with a market capitalisation of less than £2m – well under half the number a year ago – and only 515 with a market capitalisation of less than £10m, compared with 806 at the end of 2008. “The number of delistings last year was a small positive,” said Sean O’Flanagan, an investment adviser with Collins Stewart. “It was part of a self-cleansing process and the overall quality of Aim market has improved as a result.” Today, the average market capitalisation of a company listed on Aim is £44m compared with just £24m two years ago. In Baker Tilly’s report on Aim, Chilton Taylor, the firm’s head of capital markets, writes: “Now that the dust has settled on 2009, one can see that Aim’s aggregate membership is undoubtedly of a higher quality than before. This can only be good news for the market. As economic stability returns, and the UK economy benefits in the post-election period, there is cautious optimism for Aim’s primary market expansion in the second-half of 2010.” But Richard Plackett, who runs BlackRock’s UK Smaller Companies and UK Special Situations funds, says weeding out the good companies is still difficult.
“You have to look hard at the fundamentals,” he says. “We look to invest in companies with experienced managers, strong market positions, the ability to generate cash and sound balance sheets. May Aim companies fail those tests because they are too immature.” However, all Aim companies offer tax breaks, as they are deemed “unlisted” for tax purposes. This makes them 100 per cent exempt from inheritance tax (IHT) once held for two years, under the business property relief (BPR) rules. Investors can therefore transfer assets into managed Aim IHT portfolios to quickly reduce the value of their taxable estates, while potentially protecting, or growing, their capital.  Aim IHT portfolio services are now offered by nearly 20 UK asset management firms, to allow investors to take advantage of the tax relief on “unlisted” securities. A portfolio run by Octopus Investments, for example, includes stakes in 25 Aim companies and requires a £30,000 minimum. For investors, another boost was provided in the Budget last month, when chancellor Alistair Darling announced that the government will consider allowing Aim shares to be held in individual savings account (Isas). A possible relaxation of the rules on venture capital trusts (VCTs), now under consideration, could also make it easier for VCTs to invest in Aim shares.