The plunge in demand from small companies looking to raise money on the London markets could decimate broker profits this year, with Collins Stewart yesterday admitting its revenues from the capital markets were "low" in the wake of the credit crunch. The number of companies listing on the Alternative Investment Market has fallen 75 per cent this year.
Revenues at Collins Stewart have fallen by a fifth in the four months to the end of April, down from £73.1m last year to £57.6m in 2008, sending its share price down as much as 4 per cent yesterday.
The brokerage group, headed by Joel Plasco, said the "challenging" market conditions of last year had continued since it released full-year figures in March. The group added it was not directly exposed to the credit markets, but had suffered from the knock-on effect of companies shelving plans to raise capital.
It said the group's capital markets business, which involves floating companies and raising secondary capital on the market, has suffered particularly.
"Our capital markets business in the UK and the US has generated very low revenues so far this year as issuance in the equity markets, its main activity, has been very limited," Collins Stewart said.
It did not break out the division's returns, but capital markets accounted for almost a third of the £64.7m profits last year.
Collins Stewart's chairman, Terry Smith, said at its full-year results that the group was "the leading fundraiser on AIM overall, and was also the leading fundraiser for non-UK companies".
Last year the group raised £1.3bn, of which £1.1bn was on AIM. It masterminded 18 initial public offerings and 27 secondary issues. This year it has so far brought one IPO to market.
Collins Stewart has managed to offset the challenges of declining issuance with its wealth management, securities and mergers and acquisitions businesses. "Against this difficult backdrop the group has benefited from its strategy of diversifying its business streams," it said.
On the main market only eight firms have floated so far this year, excluding fund listings, raising $5.5bn, according to the data provider Thomson Financial. In the corresponding period last year, 21 companies floated, raising $21.4bn. The contrast is even more marked on AIM. Only 15 companies have listed, raising $393.7m. Last year 61 issues raised $5.2bn.
One industry said: "Some of the brokers look to be in some difficulty, and some of the smaller ones will be shaken out by the end of the year." The market expects to see some M&A activity as the smaller companies struggle as the year goes on.
One sales trader said last month: "The fact is there are too many small to mid cap brokers in the UK." Another added that "everybody is talking to everybody. There are likely to be more deals coming out of the woodwork in the near future".Reuse content