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Thinking About De-Listing From AIM?

It appears that ImageSound are ACTUALLY in agreement with the majority of private investors that monitor the Digital Out of Home sector – i.e. that the outlook for small companies is particularly bleak in the current economic climate AND could get worse before it gets better!

The result as highlighted by the Daily Telegraph recently [1] is lots of bad publicity for ISD as they plan their exit from the UK’s Alternative Investment Market (AIM).

Of all the DOOH companies, it is perhaps the biggest surprise that ImageSound with their guaranteed music revenue streams are the company that have decided to de-list (first).

With their current market cap of UK PDS 3.5m (which is substantially under the net asset value of the business) they would make a very attractive investment.

As the Telegraph article itself highlights (http://www.telegraph.co.uk/money/ [2]), the de-listing could save them £150,000 a year which on the surface may seem like a good business decision.

For the small, private investor ISD now becomes an unattractive prospect and with the liquidity offered by the AIM market being snatched away, the shares become very difficult to sell, which means the focus has gone from capital appreciation to dividend yield.

In growth companies like ISD, a regular and sizable dividend yield is far from a sure thing, as they retain dividends in order to fund the costs of expansion.

The de-listing may be good for ImageSound due to the money saved, however, for the small shareholders there has essentially been a trade off – a trade between a potential increase in dividends but a severe restriction in the liquidity of the stock and thus the probability of any short term capital appreciation.

Few small investors will have bargained on undertaking a long term position in a small cap. Usually (but not always) we buy small caps for the chance to make reasonably quick returns on our investment.

Now small shareholders holding ISD will have to wait for the dividend payments to have a positive impact on their investment and it may be a long time before any profit is realised.