Despite the struggling global economy and double dip recession, new research by Smith & Williamson reveals high levels of confidence among UK-based, AIM-listed companies.
Two-thirds of the 152 AIM-listed companies surveyed believe that being on AIM has been good for business, with acquisition and fundraising plans remaining surprisingly robust. Nevertheless, three-quarters expect the number of companies on AIM to continue to fall.
Business confidence remains broadly intact among AIM companies despite a clear fall in confidence among survey respondents about the economy as a whole. In fact, over half (54%) of participating companies expected a double dip recession, compared to just under a fifth (18%) in 2010.
But, in spite of this, more than seven in ten (72%) respondents are positive about the outlook for their own business in the coming year, only slightly down from eight in ten (83%) last year. While 8% of respondents are negative in their outlook (compared to just 3% last year) this is substantially less than the 21% who weren't confident in 2009.
In keeping with this relatively upbeat mood, 59% of AIM companies plan to increase investment in their business, while another 49% intend to recruit more staff.
Philip Quigley, head of AIM at Smith & Williamson, says: "Many of the smaller businesses on AIM have now left the market; the remaining companies are generally larger and well managed. Many of these businesses are looking to grow so investment and recruitment naturally form a part of this." Half (50%) say trading has improved over the last 12 months. While this is a decrease on 2010 (65%), it is a significant improvement on 2009 when this figure was closer to 30%.
In 2011, around £4.3bn was raised on AIM through new admissions (£0.6bn) and further fundraising (£3.7bn). Two-thirds of our participating companies plan to raise further finance on AIM over the next year.
"These statistics underline the resilience of AIM as a market to raise finance," said Azhic Basirov, head of capital markets at Smith & Williamson.
While 43% of respondents are looking to raise less than £5m, 26% wish to raise between £5m and £20m. Another 7% of participants are considering potentially game-changing funding of between £20m and £50m or more.
Azhic continues: "The fact that over two thirds (69%) of participating companies are looking to raise up to £20m shows just how far AIM has come since it was first launched. However, given the general market conditions, the question is whether these levels of fundraising are a wish-list or reality."
Companies with a market cap of less than £5m
Over two-thirds (68%) of the smallest companies surveyed plan to raise funds of less than £5m. 13% are looking to raise sums equal to or well above their market capitalisation.
Companies with a market cap of £5m - £25m
Just over half (54%) are seeking to raise less than £5m, while a quarter (25%) want to raise between £5m and £20m.
Companies with a market cap of £25m - £50m
45% want to raise between £5m and £20m, with another 10% looking to raise more or less their market capitalisation of between £20m and £50m.
Companies with a market cap of £50m plus
29% wish to raise less than £5m and 14% are aiming for between £5m and £20m.
Nearly three-quarters (72%) of respondents are considering making an acquisition, with around half (52%) expecting to do so within the next year. This is similar to last year when these figures were 68% and 48% respectively.
Azhic says: "AIM has continued to deliver its promise of providing follow-on money to well-managed, performing companies as evidenced by the £3.7bn of further money raised on AIM last year which has enabled companies to fund their expansion plans, through acquisitions or organically, during the very difficult market conditions." While the survey reveals that companies of all sizes are keen to make further acquisitions, most notably:
- over three quarters (82%) of respondent companies with a market capitalisation of between £5m and £25m plan to make an acquisition at some stage
- just under half (46%) of participants worth between £50m and £100m anticipate making an acquisition in the next six months.
AIM: the place to be?
Nearly two-thirds (64%) of companies surveyed say being listed on AIM has been good for their business. "Being on AIM gives companies international credibility. Judging from our survey, businesses are confident about the benefits of an AIM listing despite difficult market conditions," says Philip.
Azhic adds: "It is important to consider AIM's success not in isolation but in comparison to the other equity markets around the world. When compared to the key junior or growth markets based in other jurisdictions, AIM had a higher level of activity in 2011 both in the number of primary and secondary fundraisings. A similar comparison with the key main markets in the same jurisdictions also places AIM in a favourable light."
However, the volatility on AIM over the last year has been unhelpful, according to 72% of our companies.
"Fluctuating share prices can affect bank covenants that are market-cap related and share options, as well as the ability to make acquisitions and raise capital. In short, the uncertainty makes it more difficult for companies to set their business strategies," explains Azhic.
Only 4% of AIM companies anticipate a Standard Listing on the Main Market of the London Stock Exchange in the future, with another 4% considering a Premium Listing. "This is a very different picture from our 2009 survey, when 20% of respondents said that they were thinking about a move to the Full List," says Azhic.
Only 5% of companies anticipate delisting in the next year, slightly down on last year (7%). A further 5% say they will consider this option in more than 12 months. "This would suggest that most of the delisting from AIM is behind us," says Azhic.
Nearly 40% of companies agree that the rise in the EIS and VCT threshold from April will boost their business, while nearly two-thirds (64%) believe it will boost AIM in general. But there is a suggestion that more could be done when it comes to government economic policy – especially if AIM is to become increasingly international, as 57% of respondents believe it will.
"There is a general feeling that UK tax breaks for smaller quoted companies could be better, with just 7% of our survey respondents believing that the government supports the smaller quoted market," says Philip. "The UK is making some progress with, for example, the patent box regime, which will provide for a lower rate of corporation tax for profits derived from qualifying patents. But more could potentially be done."
About our survey
These results are from our survey of UKbased, AIM-listed companies, conducted at the end of 2011. Over 150 companies took part, representing 13% of AIM-listed companies operating in the UK and a wide range of market capitalisation values, length of time on AIM and proportion of shares in public hands. Participants were primarily FDs, CEOs, directors or similar.
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