Companies that listed on AIM have over the first nine months of 2014 outperformed the FTSE AIM All Share Index by a considerable margin, according to research by Cavendish Asset Management.
Peter Renton an Equity Analyst at Cavendish says: “Analysis by Cavendish reveals that, so far this year, AIM IPO prices rose by an average of 12% on their first day of trading, and had retained that 12% gain 30 days after listing.
The recent dip in the market has inevitably led to these companies giving up some of their initial gains, but on average they remain up 5% for the year to date. This is especially impressive when considering that the FTSE AIM All Share Index has fallen by 16% this year.”
Overall 2014 has been a very active year for IPOs on the AIM market. The first nine months of 2014 have seen 58 new companies list on AIM, compared with 41 over the same period in 2013; a 40% increase. Nearly £2bn of new money by new companies has been raised on AIM so far this year, which is the most in seven years. However, despite this resurgence, IPO activity remains a long way short of the frenetic period seen before the 2008 financial crisis, where the number of AIM listings reached as high as 335 in 2005.
Analysis of the AIM IPO market reveals some interesting dynamics to this bout of activity. For a start, we can see that the IPOs have been concentrated in three sectors: Consumer Discretionary, Information Technology and Industrials, which together accounted for nearly two thirds of listings.
The proportion of listings in the Industrials and Information Technology sectors is not too dissimilar to their weights in the FTSE AIM All Share Index. However, the prominence of the Consumer Discretionary sector is perhaps the most notable. These are companies which sell non-essential goods and services such as jewellery, holidays and cars. Whilst the Consumer Discretionary sector accounts for just 13% of the FTSE AIM All Share Index, a significant 26% of this year’s AIM IPOs have been in the sector.
Another important aspect to consider is that this 5% average return figure for AIM IPOs masks considerable variability in the returns of AIM IPOs.
By far the best performing stock this year has been 4D Pharma, a biotech venture, which has returned 230% since floating in February. The shares have performed strongly after announcing that both its treatments for irritable bowel syndrome and paediatric Crohn’s disease are to begin clinical trials shortly, By contrast, the worst performing stock is Bagir, a suit maker, which has fallen by 78% after the company surprised the market shortly after listing by announcing that it had lost a contract to supply its main customer M&S.
Renton concludes: “Small companies can be especially sensitive to one particular corporate ‘event’, which can have a significant impact upon the share price. Consequently, it is critical to perform a careful analysis of each new stock coming to market, and fully understand the risks being undertaken, especially in these increasingly volatile times.
Whilst AIM and small capital funds will have access to many of the IPOs, they are unlikely to be shown them all, and retail investors will have considerably fewer (if any) chances to invest in these IPOs directly. Nevertheless, it shows the opportunities available to those who have access to the IPOs coming to market.”
