AIM Has Not Delivered

Tom Bulford / The Penny Sleuth, a very well respected analyst / broker / trader / journalist wrote today about what he sees as the continuing problem with the UK’s Alternative Investment Market (AIM).

He is basically saying that

• AIM has not delivered what it promised…
• And this is a problem for the exchange…
• They need to focus on what they have got…

In an open letter to his readers and subscribers, he writes…

Dear Reader,

Last week I met the chairman of a small AIM-listed company that came to the market last year. ‘I am,’ he said, ‘very disappointed in AIM.’ I can understand why.

He has seen the share price of his company (which I will describe in this column tomorrow) halve, despite the fact that it has done absolutely nothing wrong. The shares now trade on a derisory rating making it hard for the company to raise equity capital and leaving the directors, who hold a good number of the shares, wondering why they bother to pay the six figure annual fee for the privilege of having a quote on the London Stock Exchange.

This is no isolated case. Last month Imagesound, another perfectly respectable and profitable business that was hoping to grow through issuing shares, has run out of patience. It has decided to de-list its shares, effectively waving goodbye to its life as a public company and returning to the private sector.

Here is another example.

In April, the executive directors of Blue Star Mobile bought out the assets of the company, again effectively taking it private, commenting: ‘Since the company floated in April 2005, the Executive Board and senior management have become increasingly frustrated with the public arena… the company has failed to attract institutional investors and whilst the Board believe they have, until this year, achieved respectable results, this has not been reflected in the company’s share price.

‘There has been little liquidity in the company’s shares and such trading as has occurred has seemingly been outside the market in matched buyers and sellers. The performance of the share price has frustrated the company’s ability to issue and raise equity as capital for the purposes of making acquisitions. In addition to this, the time and costs associated with being a public company are not justified and the Executive Board feel that their time may be better spent on the commercial development of the business in the private arena.’

I have absolutely no doubt at all that the directors of a great many other small AIM-quoted companies feel the same way. This is bad news for them, bad news for shareholders who are at risk of being obliged to sell out of their shares at a very low level, and bad for the City and the Stock Exchange which will lose the stream of fee income that public companies provide.

The LSE should act

It is about time that the London Stock Exchange did something about this, and stopped congratulating itself and issuing self-satisfied publications such as the one that I have just read.

It is called ‘AIM – The Growth Market Of The World’ and runs to 120 pages of unctuous articles form AIM advisers and hired journalists, all saying what a great success AIM is; how wonderful that it has attracted so many companies from all over the world; how clever the LSE has been to impose a rule book that is sufficiently strict to safeguard investors while lax enough not to be a great burden on the quoted companies themselves.