Small Talk: Cash shells crackdown to claim 30 more victims

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The Independent Online

Thirty companies listed on the Alternative Investment Market will have their quote cancelled this week as part of the exchange's crackdown on cash shells.

The process started in April when 38 companies had their shares suspended. It will be completed tomorrow when the bulk of them lose their junior market listing.

The shells suspended in the spring, each with less than £3m in the bank, were told they had six months to find a suitable acquisition. Since then, only five have done a deal, including Azure Holdings, formerly the scandal-hit Room Service. Three have already been delisted for other reasons.

Why is the London Stock Exchange, which runs AIM, implementing these reforms? Over the years, it has become concerned by the number of cash shells that join the junior market and sit there for too long without using the money raised.

The share prices of such companies are easy to manipulate and some are set up merely for tax-avoidance reasons. The LSE wants the cash shells of the future to be well capitalised with a clear investment strategy. Any coming to the market since 1 April have had to raise a minimum of £3m.

For those companies that are delisted, the most attractive option is likely to be the lightly regulated Ofex exchange. Moving to Ofex may hit a firm's market value, but it saves shareholders from finding themselves stranded in a wholly private company with little chance of being able to sell their stakes.

Hope for Pixology

Long-suffering shareholders of Pixology, which makes software that aids the printing of digital photographs, should be encouraged by last week's news that Eurovestech has taken a 7 per cent stake in the company.

Eurovestech invests in quoted and unquoted technology companies across Europe and, like Pixology, is listed on AIM.

It paid 27p a share for its holding - a smart move as it values Pixology, chaired by Lord Young of Graffham, the former Tory cabinet minister, in line with the amount of money it has in the bank.

It is likely that the investment group has bought into Pixology at the low point of its shares. The company floated in 2003 at 140p and, after hitting a peak of 190p in 2005, the stock has been in retreat since. On Friday, it closed at 31p. This collapse is a product of the losses Pixology has racked up. In its last financial year, it registered a pre-tax loss of £1.3m on sales of just £3.7m.

However, Eurovestech, where the former Schroders equity analyst Richard Bernstein is the chief executive, is unlikely to allow this state of affairs to go on for much longer. It is an activist investor with a superb track record when it comes to making money from technology companies.

Since its March 2000 float, Eurovestech shares have more than trebled while the techMark 100 London technology index has lost 75 per cent of its value.

One of its most spectacular investments has been the online market research firm ToLuna. Eurovestech provided £2m seed capital to the group in May 2000. ToLuna is now listed on AIM and Eurovestech's stake, which stands at 57 per cent after it cashed in its original £2m investment, is worth £36m.

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