Small Talk: Aim wants its rules relaxed to allow easier investment
Monday 04 October 2010
It may have come in for a few knocks and bruises over the past two or three years – some deserved, others not – but the Alternative Investment Market (Aim) is a major asset to the UK economy, according to research published last week.
In 2009, companies listed on the growth market of the London Stock Exchange (LSE) contributed a total of £21bn to UK GDP and supported 570,000 jobs through direct, supply chain and multiplier effects, according to a report by the accountants at Grant Thornton. But greater fiscal incentives and fewer restrictions are needed to stem net outflows of capital from small caps and enhance the economic benefits delivered by the sector, they said. The report was commissioned by the LSE.
You may, of course, have noticed a slight flaw in the findings, with Aim being part of the LSE, but at least the numbers provide circumstantial evidence that points to the SME sector being the powerhouse behind the recovery of the British economy. With the facts established, Grant Thornton has gone in for the kill, making a list of demands from policy-makers to sustain the contribution of the small-cap exchange.
"If Aim is to continue as the world's leading platform for growth companies looking to raise capital, we need to lift unnecessary restrictions on the investment criteria by Venture Capital Trusts [VCTs – a tax-efficient get-up that allows private-equity firms and business angels to invest in small companies] and reverse the gradual erosion of fiscal incentives," said Stephen Gifford, the chief economist at Grant Thornton.
Because of the small size of a number of Aim-listed companies, and the lighter regulatory requirements they typically have to meet to gain a listing, there are some tighter rules on who can back the groups, and when.
"Restrictions which mean relatively few Aim companies are eligible for investments by VCTs are obviously counter-productive. VCTs are a vital catalyst for Aim, often acting as an anchor investor that encourages other institutional funds to invest in the same company," said Mr Gifford.
As you might expect, Aim was very pleased with the recommendation and backed Grant Thornton's findings.
"This report underlines the importance of Aim to UK jobs and the UK economy. Aim is already a hub of entrepreneurial activity, but it is vital that the market can draw on the most supportive business environment possible if it is to achieve its full potential in helping power economic recovery," said the head of Aim at the LSE, Marcus Stuttard.
"The findings and proposals in this report support the recommendations the London Stock Exchange has put forward in its response to the Government's consultation on financing a private-sector recovery. We ask Government to recognise the importance of a package of measures needed to attract investors to SMEs and allow companies to raise capital at an acceptable cost."
No plain sailing yet for Cubus Lux
Another week, and another bout of contradictory news from Cubus Lux, the Austrian-run, Croatian-based and London Aim-listed tourist group, which has rights to build hotels, casinos and golf courses along a stunning piece of Adriatic coastline in the Balkan republic.
The company issued its full-year results last week (at quarter past three in the afternoon, after a "technical hitch") outlining a deeper pre-tax loss, of £3.6m, over the past 12 months, compared with a year ago. The net loss per share dropped to 18.99p, against 14.2p in 2009.
Predictably, Cubus Lux's share price fell, but by only 1.5 per cent, which was not anywhere near enough to make inroads into the group's 20-odd per cent share price gains over the past 12 months.
Comments by executive chairman Gerhard Huber probably helped to cushion the blow, pointing as they did to potential growth over the next year.
"Opportunities for Cubus Lux continue to emerge, and despite the slower pace of our development – which reflects the slower pace of financial and credit market activity – your board remains confident of a healthy future for real estate and tourist-related development in this region of Europe, and for Cubus Lux in particular," he said.
"Our vision remains intact, financing discussions continue and, we believe, becoming very much closer to fruition."
This must relate to the fact that talks on new marina locations are "very advanced", according to finance director Steve McCann. It is understood that Mr McCann met the mayor of Hvar at the weekend, about building a marina. Known for its extensive lavender fields, vines and olives, Hvar is the longest island in the Dalmatian archipelago. It has plenty of hotels and inns, but, as yet, no marina.
Origo eyes green technology sector
With growth in China and India going like the clappers, it probably shouldn't come as a huge surprise that a private-equity firm that devotes itself to investment in the two emerging-market powerhouses should be doing well. The Aim-listed Origo group, which focuses on mining assets, largely in China, posted its full-year numbers last week, the highlight of which was a swing into pre-tax profit.
Origo said that pre-tax profits came in at $2m (£1.3m), versus a loss of $3.5m (£2.2m) last year.
The improved performance comes, perhaps more impressively, as the group's shares have put on nearly 80 per cent in the past 12 months. The progress comes in the group's third year as an Aim-listed group, and now that it has turned a profit, investors will want to hear about exit strategies and how it plans to put its $47.7m (£30m) cash pile to work.
No private-equity firm wants to see cash gathering dust in the bank. As well as mining, Origo has its eye on green tech companies and in recent months has invested in the sector.
Back in August, it bought a 16.5 per cent stake in Unipower Battery for an aggregate amount of $4.3m (£2.7m). Then, in September, Origo announced the acquisition of a 25 per cent holding in Kincora, the owner of the Bronze Fox copper-gold prospect in Mongolia for $3m (£1.9m).
"We maintain our positive outlook for both the Chinese economy and the company's prospects," said chief executive Chris Rynning.
"We see most growth potential in the natural resource and clean-technology sectors and we will continue to target investments Mongolia and our plans for a new ... fund focussed on the clean-technology sector."
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