Small Talk: A record year for AIM, but slim pickings for the market's investors

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The Independent Online

It is true that 2005 was a record year for the Alternative Investment Market, the London Stock Exchange's junior market for small and growing companies. But it is also profoundly misleading.

Yes, it is true that AIM attracted a record number of new companies - just over 500, taking the number of companies on the market to more than 1,400 - and that new and existing companies raised a record £8bn from investors. It was undoubtedly a breakthrough year for those companies, and a lucrative year for their directors and advisers.

But let's spare just a little thought for the investors.

AIM was up barely 4 per cent in 2005, compared with 16.7 per cent for the FTSE 100 and 18.1 per cent for the FTSE All-Share, which measures fully-listed shares.

AIM's 50 biggest companies did appear to perform as well as their fully-listed counterparts, so the conclusion must be that there is a lot of dross on AIM that is dragging down the average. More shares fell in value over the course of the year than rose.

Of course, AIM is the home of speculative ventures which promise great riches if their inventions or discoveries are commercialised, but where investors know full well they risk losing all their money if there are setbacks.

But it is not the high-profile disasters - the Regal Petroleums, whose hyped oil wells turn out to be dry, or the Langbar Internationals, whose cash piles go missing mysteriously - which threaten AIM. The real risk is in this great long tail of shares heading south, as the brokers and advisers who sold them attempt to interest the same investors in the next big float.

Investors, both private and institutional, will stop playing if the long-term odds look so poor.

Advisers report having as long a list of spring float prospects now as they did this time last year, and the London Stock Exchange is excited about the chances of attracting some substantial international companies to AIM. However, quantity should be sacrificed for quality this year, and advisers must focus instead on restructuring and revivifying the dozens of moribund companies on their books. For AIM's sake.

Block Shield bonanza

AIM investors can take heart from the story of Block Shield, a little technology company which floated in April 2004, which has developed new commercial uses for its inventions, perfected its manufacturing techniques and stands on the brink of its first big commercial order.

The company has a clever piece of kit which reduces the electromagnetic interference between electronic devices, and is about to announce that it will be used inside a new product launched by one of the world's biggest manufacturers of pacemakers.

The US company St Jude Medical is using the Block Shield technology - combined with technology from IBM - in a wireless medical device, and IBM reckons that Block Shield's share of the orders will be worth $2m this year.

DataCash update

First outing today for Andrew Dark, the new chief executive of DataCash, which processes credit and debit card transactions made over the internet. A trading update will show that the company ended 2005 in line with the market's expectations and will make some positive noises about the prospects for new contracts and business relationships in the coming year.

The company is expected to say that it processed 60 million transactions last year, an almost 50 per cent increase.

Shipping firm on course for calmer waters

Small Talk received a New Year's Eve call to suggest we make Global Oceanic Carriers one of The Independent's tips for 2006.

The company was set up to buy a small fleet of large cargo ships, giving AIM investors the chance to get a piece of the burgeoning market for dry-bulk shipping, which has expanded with China's demand for raw materials such as iron ore.

But the timing of the float was lousy, and the shares almost immediately hit an iceberg. Dry-bulk shipping rates - the cost of hiring vessels - collapsed in June and July from $25,000-plus a day to barely $8,000. Even now, industry experts are puzzled as to why. The number of ships available has been creeping up, but not at too fast a rate.

Global Oceanic, which is run by Vassilis Vintiadis, a Greek shipping executive with 39 years' experience, scrapped plans to buy a fourth ship, taking on the chin the loss of a $1.72m deposit and having to pay compensation of 1.5 million shares. Unresolved talks between Global Oceanic and its banks over new loan terms, and the fear that the company's balance sheet may be overstating the value of the existing ships, meant we decided the stock was too risky for The Independent's portfolio.

But consider this. The talks with the banks are now resolved and the company has defined its interest bill for this year at $3.7m, which is easily manageable, even assuming Global Oceanic has to accept lower rates when the current charters on its ships run out between now and spring.

The company also estimates the value of its three ships at $40m, and its net debt at $16.5m. That means its shares are trading at about a one-quarter discount to their net asset value. Directors plan to trade in the smallest ship for one or two newer ships sometime this year, which might be the moment when its shares finally get lifted off the seabed.

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