Smaller companies group presses for a three-tier market

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The Independent Online
The campaign for a new-look stock market is gathering strength. Cisco, the lobby group which represents companies outside the Footsie and the FTSE 250 indexes, may not be particularly powerful or well known but it can claim to have nudged the Stock Exchange into creating AIM, by general consent an outstanding success.

Now it is prodding the Exchange again, this time suggesting it should act on proposals formulated five years ago.

The idea is a three-tier market. Companies in Footsie and the FTSE 250 index should be grouped together in a sort of Premiership; the rest of the fully listed herd should become what would amount to a Nationwide League and, to maintain the football analogy, AIM and Seat shares would create a Vauxhall Conference - or, in Cisco phraseology, an enterprise market.

It is patently clear that in stock market terms the requirements of, say, Glaxo Wellcome, differ dramatically from AIM-listed Stanford Rook, even if they are both drug companies.

Of course, the needs of institutional investors and private investors are also vastly different and the same argument can and should be made for introducing systems to accommodate their respective needs.

Whether a two-tier market for big and small investors will ever emerge is far from clear, but the Cisco initiative for market segmentation may make headway. After all, the Exchange came out in favour of the idea in 1992 and despite five years' inertia remains committed to the multi-market formula.

John Kemp-Welch, the Cazenove man who is Exchange chairman, drew attention to the need to "have a segmented market-place, providing distinct markets for different types of securities and investors" in a recent speech.

"One size", said Mr Kemp-Welch, "does not fit all," and Katie Morris, Cisco's chief executive, has raised the possibility of companies deserting London for Nasdaq, the American market, or the fledgling Easdaq European market.

Obviously, the days when an aspiring domestic company only thought in terms of a home-grown quote are long gone. Paris and Frankfurt are still small and insignificant share markets, but they are making strenuous efforts to increase their appeal. And Nasdaq and Easdaq have already enjoyed some success in attracting companies which would normally settle for London.

A variety of arguments for segmentation, including differing tax needs, can be produced. But it is internationalisation which could bring things to a head. History shows that regulations get more and more elaborate. As Cisco says: "In order to develop a thriving international market, the Exchange may need to increase regulation - quarterly reporting, international accounting standards - and respond to the heavy influence of US investment houses in areas such as corporate governance. To focus on defending the market in leading stocks without paying due care and attention to the needs of smaller, developing companies is myopic."

It adds: "Smaller companies are important to the economy, making a significant contribution to economic growth and wealth creation. A vibrant market requires a supply of companies willing to submit themselves to rigorous transparency and regulatory rules, therefore being suitable as investment opportunities."

Clearly Cisco fears the Exchange will get carried away by international demands, forgetting the vast majority of quoted companies.

Cisco could well draw an uncomfortable comparison from the way small investors have been treated in the rush to accommodate the demands of the large investment houses.

Last week, shares seemed mesmerised by New York. So it was appropriate that Legal & General's investment team had a rethink about Wall Street. It believes New York is overvalued and suggests it will remain so in the longer term although a correction could be near.

If L&G is right, yet another part of the argument for a soaraway Footsie remains in place. Forecasts for Footsie to hit 5,000 in a year's time are commonplace: some suggest it could be approaching 8,000 by the millennium.

Turning to this week, Granada heads a hefty list of company results. The half-time profits, expected to come out at pounds 240m against pounds 183.5m, will have been enhanced by a full contribution from the pounds 3.9bn Forte takeover.

The figures, however, will not be the main market interest. Investors remains fixated by the timing of asset sales, mainly former Forte businesses.

Still for sale are nine upmarket hotels, the Savoy Hotel stake and the computer maintenance side. Other bits and pieces are also on the block. There must be a strong probability that Granada will announce at least one disposal with its figures on Wednesday.

Today BAA, the airports group, lands with year's results - around pounds 440m up from pounds 403m is expected before allowing for a pounds 40m hit over the Terminal Five saga.

The water reporting season continues and Hyder and Severn Trent will no doubt stir up predictable Westminster reaction. Severn Trent, tomorrow, is expected to report little-changed profits of pounds 372m, but its strong balance sheet could tempt a substantial dividend increase. Hyder, the Welsh electricity and water combine, will also have dividend growth in mind today, with profits some 28 per cent higher at pounds 215m. NatWest Securities suspects Severn will increase its dividend by 11 per cent and Hyder by 14 per cent.

Dairy groups Unigate and Northern Foods are unlikely to offer much in the way of profits cream. In a year of reshaping, Unigate is forecast to be off some pounds 15m at pounds 110m when it reports today and Northern Foods, tomorrow, should be marginally higher at pounds 128m.

Among others on the results list are Electrocomponents, which is expected to produce pounds 110m (against pounds 98.9m); Christian Salvesen pounds 86m (pounds 76.6m); FirstBus pounds 57m (pounds 32.4m); British Land pounds 75m (pounds 65.7m) and Meyer International pounds 40.5m (pounds 38.4m).