Nomads score a bull's-eye with fees as cost of floating on AIM soars

STOCK MARKET WEEK
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The Independent Online
The cost of joining AIM, the Stock Exchange's junior market established to replace the USM nearly two years ago, has soared.

Nomads, the nominated advisers which all AIM recruits need, are largely responsible for the escalation which, according to some observers, could put the market out of the reach of many of the smaller companies it was created to accommodate.

In the early days a Nomad charge was as low as pounds 25,000; total cost of a flotation could be less than pounds 50,000.

Nowadays most Nomads are unlikely to offer services for less than pounds 100,000. Many do not start to contemplate a new client below pounds 200,000 and stories go the rounds of fees of pounds 600,000 being demanded.

On top of enriching the Nomad - there are 60 - the would-be AIM constituent has to satisfy the bills of accountants and lawyers, possibly up to another pounds 200,000. The chosen stockbroker also expects a reward.

Then come the not-inconsiderable printing costs, and possible advertising and public relations charges. A resources company must alsocontend with the costs of geological studies and reports.

The drain on management time, often huge, is another factor. Indeed, one company's top brass is known to have spent so much time on flotation details that for two months it was diverted from the day-to-day function of actually running the business.

The day of reckoning came a few months after flotation when the company had the sad and humiliating task of having to issue a hasty profit warning.

There is also the story of one company which found the outlay for a full listing only pounds 75,000 more than getting a presence on the junior market.

The soaring Nomad charges are said to be due to the tough line now being taken by the AIM team at the Stock Exchange; it is demanding much more detailed research and seems prepared to impose stiff penalties on advisers which have, it feels, not been diligent enough.

AIM casualties have, so far, been few and far between and the Stock Exchange can, therefore, justify its demanding stance.

It has, however, to be careful not to retard the market's progress. AIM, the alternative investment market, has been a remarkable success with more than 270 constituents, worth around pounds 5.8bn. And there is still a steady flow of newcomers.

The AIM team has a delicate balancing act to perform. It is right to demand detailed scrutiny of candidates but it would be a pity if over- regulation is allowed to make the market too expensive.

Certainly the yearly membership fee imposed by the Stock Exchange is modest, no more than pounds 4,000.

The fringe Ofex market, run by jobber John Jenkins, is more lightly regulated and very much cheaper. If a newcomer is not raising cash the cost of admittance can be around pounds 10,000.

So far Ofex has suffered one casualty, Woodstock, a pubs and restaurants group. It is on the verge of going belly up because the value of its pub assets were overstated at the time of the flotation, when it raised pounds 600,0000 through Austin Friars Securities, last summer.

Of course, the fees charged to take AIM pale into insignificance when compared to the riches the City is piling up from the building society rush to convert to plc status.

Alliance & Leicester, the first to reach the stock market, arrives today with BZW suggesting the shares are a buy up to 520p.

Although 27.5 per cent of Alliance shares have been cashed in, bundled up and sold by auction through stockbroker Cazenove, there is likely to be heavy trading today.

The 27.5 per cent will go a long way to meeting the early institutional demand which the Alliance share sale created. If institutions are content to take their time building the stake Alliance's presence requires then the early turnover stampede may be avoided.

Even so there are worries about the ability of Crest, the computerised settlement system, to handle the conversions.

Many private client stockbrokers remain unhappy about the system, complaining their back-office staff are being forced to work late into the evenings to accommodate the Crest shortcomings.

Crest is confident it can meet the challenge of the six societies going public although it says it is "not complacent". Today will be the toughest test the system has yet encountered and judging by comments flying around the investment community on Friday its confidence is treated with some scepticism.

Imperial Chemical Industries head the results list. First-quarter figures are due on Thursday and NatWest Securities is looking for a depressing pounds 75m, a 63 per cent fall. But analyst Lucas Herrmann believes this week will represent the low point in ICI's fortunes.

His hope is that quarter-on-quarter results will start to improve. SmithKline Beecham is another with first-quarter figures; around pounds 425m, up from pounds 387m, is expected.

Today Premier Farnell, which stunned the market with a profits warning in January, should produce around pounds 135m.

On the retail front DFS Furniture, which has aggressively pushed into London and the south, is likely to offer interim profits above pounds 18m against pounds 15.1m and Austin Reed looks set to nearly double year's figures to pounds 6.8m.

Laura Ashley, the fashion and furnishing chain being shaken up by Ann Iverson, recruited in 1995, should display an attractive set of figures. Year's profits should be around 50 per cent higher at pounds 15.5m.

The American chief executive has reinvented the group, once renowned for its flowery frocks, which had seemed to lose its way and was running hard just to stand still.

Bank of Scotland also offers figures this week. It should produce around pounds 660m, a 21 per cent increase; a dividend of 8.2p is suggested, representing a 20 per cent advance.

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