Small Talk: Drop in delisting signals end of recession for small cap sector

Aim delistings

Good news at last for the Alternative Investment Market (Aim). After almost two years of seeing companies pack their bags and march away from the index in record numbers, it seems that the recession for the small cap sector is finally coming to an end.

Every quarter, the helpful lawyers at Trowers & Hamlins and the accountants at UHY Hacker Young, publish statistics on those joining and leaving Aim.

The two groups say that the number of companies leaving the exchange in the first quarter of 2010 has fell to a 24 month low. The number of companies delisting between January and March dropped to just 44, down 40 per cent from the 73 that jumped ship in the fourth quarter of last year. The quarterly total is the lowest since the first three months of 2008, at the height of the financial jamboree.

The other encouraging aspect of the findings is that fewer firms are going out of business. "Company takeover" was the reason that 46 per cent of firms left Aim in the first quarter, up from 32 per cent at the end of last year, indicating at least that that shareholders are making some money from Aim dealings.

Just 10 companies had to delist in the first quarter because of insolvency or financial stress, which is less than half the 22 that delisted because of financial reasons in the fourth quarter of last year.

"Not only do these figures show that Aim is no longer haemorrhaging companies, almost half of those that have delisted are doing so because they have been taken over, which is a positive sign for the market after a turbulent 18 months to say the least," said Charles Wilson, a partner at Trowers & Hamlins.

"Whilst this quarter may mark the turning of a corner, however, there are still plenty of challenges facing both the UK and the global economy." One common complaint among small-cap chief executives last year was that the cost of maintaining an Aim-listing was prohibitively high. With corporate profitability improving, this is becoming less of a worry it seems.

The number of companies delisting from Aim because of the high cost of a listing on the exchange fell to just four between January and March, down from 14 in the fourth quarter of 2009, and from 20 a year ago.

A glittering effort: Peninsular Gold

Gold has been an increasingly popular investment recently as money men have put their cash into what has long-served as a secure asset. Indeed the price of gold rocketed to over $1,200 an ounce, while the World Gold Council and the Chinese announced last week that they had signed a strategic partnership on gold, and miners continually report decent earnings. Aim is packed full of gold explorers and producers, most of which have enjoyed share price hikes.

Peninsular Gold, which concentrates its efforts in Malaysia, has seen its shares jump by 47.5 per cent in the last six months alone. The group has seemingly timed its move into becoming a producer just right after pouring its first gold in the last few months.

Isas: Government ends ban on Isas investing in Aim-listed firms

Governments of whatever hue have a predictable habit of picking up on a good idea long after most other people.

For some considerable time, Clive Garston, a prominent small-cap lawyer at Davies Arnold Cooper, has been banging on (and we don't think he would consider that to be rude) about the ban on Isas investing in Aim-listed companies.

Mr Garston argued that small companies had suffered when the taper relief on capital gains tax was abolished for Aim investments, and nothing had been sent by the Government to replace it.

At last, according to Mr Garston, the Government has worked it out, and the ban has been abolished in the small print of the Budget. Buried deep in the Red Book, the Treasury announces: "Isas are a simple, flexible and accessible tax-advantaged savings vehicle. The Government remains committed to these objectives, and also to supporting small and growing businesses.

In this context, it intends to consult on allowing Alternative Investment Market [AIM] shares to be eligible as a tax-advantaged investment for retail savers."

Hats off to Mr Garston for his persistence. Lots of small caps, and investors, are likely to benefit as a result of the change.