No Pain, No Gain: Why AIM's fans are in no mood to heed the critics
Saturday 10 February 2007
The No Pain, No Gain portfolio is wedded to the Alternative Investment Market (AIM). The London Stock Exchange's under-fire junior share market has provided most of its action and today contributes 11 of its 14 constituents. Just to emphasise its devotion, the last recruit was plucked from AIM; the candidates currently under consideration are AIM-traded and the two shares I have sold this year are - yes, you've guessed it - AIM stocks.
A few weeks ago I substituted Private & Commercial Finance, a little hire purchase group, for Georgica. With the takeover cash for IDN Telecom at last in the bank (it arrived on Saturday) I am seeking a replacement and could eventually embrace Lorien, a non-too-successful IT recruitment and services group.
I am non-plussed by the sudden outbreak of hostility towards AIM. Like all secondary, lightly regulated markets it has produced disasters. Yet even the most tightly controlled platforms are not immune from unsavoury escapades. AIM was primarily introduced to allow young upstart companies to raise cash and enjoy the facilities of a share market. By dispensing with the fuddy-duddy aspects of more established markets it succeeded.
True, I would not touch some constituents. Yet I would also steer clear of many fully listed shares. Most of AIM's overseas arrivals and many exploration and high-tech shares leave me cold. Still it contains many splendid companies but, as in any market, investors must be selective.
Last year it enjoyed a record stream of newcomers. It would not be surprising if the flow eased this year, putting profits pressure on some advisers. And, of course, there will be more profit warnings and some constituents could go belly-up. Even so the outburst from John Thain, head of the New York Stock Exchange, over AIM's governance standards seems particularly ill-conceived and unjustified. I am prepared to believe his comments have nothing to do with the LSE's success in outpacing the NYSE.
Come "Thain" or shine the portfolio will continue to rely heavily on AIM, although fully listed and Plus Markets shares are also regarded as fair game. Lorien has the dubious distinction of embracing my favourite market not once but twice. It floated in 1995, moved to a full listing and then became disenchanted and went back to AIM.
The company's trading record is poor. At the interims, on sales of £71m, it managed a £12,000 pre tax profit but tax adjustments left it £124,000 in the red.
Just how it fared in its second half year will be known next week. It has pencilled Tuesday for its yearly profits statement and, perhaps more interestingly, its response to a mandatory 40p a share takeover offer from serial entrepreneur Bob Morton. He has stalked Lorien for some time. Last year one of his quoted stable, Multi Group, nursed bid thoughts but eventually backed away. The Morton family investment vehicle, Southwind, held 22.1 per cent. It then acquired the 18.2 per cent controlled by Eaglet Investment Trust, triggering the takeover bid.
I suspect Lorien chief Ben Morris is none too pleased that Morton is knocking so loudly on his door. With the bidder hugging more than 40 per cent of the capital he has little room for manoeuvre. It is accepted that 38 per cent represents effective control of a quoted company, providing there is no rival shareholding block.
My guess is that Lorien, without any other major shareholder, will reluctantly accept the Morton assault; even if it resists he will, barring some unforeseen intervention, eventually assume control. And once he is in command expect a raft of changes, including new directors, acquisitions and strategy.
The portfolio has already scored from one Morton share - when the MacLellan support services group was taken over last year by Interserve. I am therefore prepared to take a chance with his latest venture. But first I want to see what Lorien has to say on Tuesday. Any profit is likely to be modest. There are also the repercussions from a major contract loss to consider.
Finally, it will be interesting to see just how many Lorien institutional investors are willing to stick around. With the shares at 45p against the 40p bid, I suspect many have already indicated they are prepared to hold on for another Morton-orchestrated adventure.
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