AIM's sickly tiddlers swim against tide

The number of poorly companies fell last year amid favourable economic conditions in the UK.

According to research by accountants Ernst & Young, 342 companies issued profit warnings in 2006, down 10 per cent from the 381 that missed their numbers in 2005.

Among the most hard-hit sectors were software and computer companies, support services, retailers and food producers.

But in another blow to the reputation of the Alternative Investment Market (AIM), most of those running into trouble were listed on the London Stock Exchange's market for smaller companies. That is a marked change from 2002, the last time a comparable number of companies issued profit warnings. Then, AIM-listed companies accounted for just 30 per cent of the total. Last year they totalled 54 per cent.

Some investors have complained about the quality of companies listed on AIM. That has spurred the LSE to impose restrictions to make it harder to bring companies to market.

"The high incidence of profit warnings from AIM companies, especially in their first year of flotation, has placed increased scrutiny on the junior market," said Andrew Wollaston, a partner at E&Y. "Its light regulatory burden is one of AIM's main attractions. But with AIM becoming increasingly popular, there will be more competition for investment."

E&Y expects more companies to miss estimates in 2007 as the tightening credit market could lead to financing difficulties and insolvencies.