Small Talk: The Alternative Investment Market has recovered after five miserable years but is still fragile


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The Independent Online

Britain has a remarkable propensity for building things up only in order to knock them down again. The sad story of the online fashion retailer Asos is a case in point. Having lauded the company for years, driving its stock to higher and higher valuations, investors have run for cover at the first sign of trouble; two profits warnings have seen the share price halve this year.

Asos’s collapsing share price has had a big effect on the Alternative Investment Market (Aim), where it has been the stand-out success of recent years. The Aim All-Share Index fell 8 per cent during the first six months of 2014, compared to the 1 per cent rise registered by the main London market, mostly because of Asos’s fall.

The market has had five years of pretty miserable times. The 2013-14 financial year was the first since the credit crisis in which more companies listed on Aim than left it. There are 750 fewer companies with Aim quotes than at the market’s peak in 2006.

However Aim IPOs raised £2.4bn during 2013-14, three times as much as in the previous year. Nor did the list of companies coming to market consist only of natural resources companies from far-flung jurisdictions as in previous years – we have seen flotations from well-known British companies such as Patisserie Valerie and Shoe Zone.

Britain’s exit from recession has underpinned the recovery of Aim. But the market has also benefited from supportive policy initiatives such as the move to allow investors to hold Aim shares within their tax-free individual savings accounts. But while the headline numbers are moving in the right direction, Aim remains fragile and volatile, as the experience of investors in Asos demonstrates.

If further prominent Aim stocks were to suffer a similar fate to the fashion retailer, the junior market might once again fall from grace – and quickly. Without investors with an appetite to buy Aim stocks, the market will struggle to continue to attract IPOs.

Moreover, with stock markets so close to record highs, it doesn’t take much to spook investors, particularly since trading volumes in many Aim shares are so thin.

These dangers are, of course, part of the deal with smaller companies. One of the reasons the Government offers tax breaks to Aim investors – there’s no stamp duty to pay on Aim share purchases, for example – is to encourage them to accept a higher level of risk than they might otherwise be comfortable with.

That said, many of those who have bought Aim shares over the past year or so will have been investing on the market for the first time. If they now get their fingers burned, they are unlikely to return for years to come, robbing these smaller companies of an important new constituency.

There is plenty for Aim to lose, in other words. The market has finally built up a head of steam over the past 18 months and could at last be putting years of setbacks behind it. But we are not there yet – this market, and its constituent companies, remain highly vulnerable to disappointment.

Namibia miner attracts $12m investment

Good news for Alternative Investment Market-listed North River Resources, which has snapped up a $12m (£7m) investment from the private equity fund Greenstone Resources. The cash will be used to accelerate the development of the company’s flagship Namib lead zinc project in Namibia, which should now be ready to begin production next year.

Looking further ahead, the company sees its Namib endeavour as a bridgehead into other opportunities in the country, as well as elsewhere in Africa. The company also has operations in Mozambique.

The company’s broker, VSA Capital, has published research into North River suggesting that the low costs involved at the Namib project, where a previous mine is being reopened, give the company an opportunity to generate internal rates of return of 165 per cent on the project.

“The addition of Greenstone as a major shareholder is a great endorsement of management, the business plan, and the deposit and reduces the project funding risk,” the broker said. It has a target of 2p for the shares, which rose 0.1p to 0.6p in trading on Friday.

Firms do too little to chase bad debts

Can this really be true? A survey from Satago, an internet start-up that aims to improve credit control, says one in three small businesses don’t chase late payments because they’re uncomfortable with doing so or fear antagonising their customers. The result is that these firms are writing off thousands of pounds of bad debt each year without getting round to chase it.

Steven Renwick, the founder of Satago, says small businesses need to be more systematic in their pursuit of creditors. “The current supplier power structure means that big business is in a position to take advantage of small businesses and freelance suppliers,” he says. “Small businesses must recognise that proactivity can help them deal with late payers – get a process in place, use the law and work with a third party to remove the distress of chasing.”

Mr Renwick has a point – if small businesses don’t do this for themselves, no one else will help. A crackdown on late payments promised by the Government almost a year ago now has still to materialise.

Small Business Person of the Week: Jim Mee, Founder, Rat Race

“I started the business in 2004 – I’d previously been working in events at Red Bull and I also had a love of the outdoors, so combining the two seemed natural.

“I knew I wanted to start my own business so I took a notebook with me on a mountaineering trip to the Andes and came up with a string of ideas.

“Our first event was in Edinburgh, with just 300 people. The idea is to bring the adventure experience out of the wilderness into an urban setting, with competitors required to do anything from running and biking to abseiling and kayaking.

“We offer everything from 10k assault course runs to full-on triathlons that take in Ben Nevis. We’ve benefitted from the increase in interest in outdoor leisure pursuits and tried to offer something for everyone – we’ll have 70,000 people doing one of our events this year.

“It’s a business I love, but it has been very hard work – certainly in the first few years I didn’t get the work/life balance right. You need to be on the ground for each event, working long hours to ensure everything is ready and people are safe and enjoying themselves.

“Our revenues come from entrance fees and sponsorship deals and fortunately the business is growing. We expect sales of £3.2m this year, compared to £1.3m five years ago. We’ll add to the events we offer. We may even go overseas – we’re talking about putting on an event in Australia.”