United Energy joins the exodus from the ranks of the unlisted

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The Independent Online
Today United Energy, an oil minnow, will produce its year's results. They will be accompanied by what is becoming a ritual announcement - the company is moving from the Unlisted Securities Market to full listing.

At one time the USM was a boom area. Companies flocked to the second- string market, launched as the City's response to criticism that it was not sufficiently accommodating to smaller companies. Now it is in its death throes and the likes of United Energy have to decide where to go; up to a full listing or down to the fledgling Alternative Investment Market.

At its peak the USM had 308 constituents. It even spawned its own subsidiary market, the uninspiringly named Third Market. But the Third Market never repeated the USM's success and was unceremoniously killed off. Now the USM will cease to exist at the end of this year.

It is yet another casualty of the European Union. To comply with an EU directive its rules had to be moved much closer to those governing a full listing.

So to retain a more easy-going second market it was necessary to destroy the USM and start again - with AIM.

The Stock Exchange's handling of its supporting markets has often lacked conviction. What ended as the 4.2 rule facility market was promoted, demoted and then eliminated.

Still the gap left by the 4.2 market has to a large extent been filled by market maker JP Jenkins' Ofex market, which now numbers nearly 100 businesses, ranging from Arsenal Football Club to Weetabix.

Some companies, however, have escaped to an investment wilderness, existing without a share market, which is unfortunate for shareholders who acquired shares through the 4.2 facility.

In some cases brokers are making markets in the wilderness shares, but completing a deal is now much more difficult and transparency, an elementary investment requirement, has been eliminated.

There are still more than 80 USM companies. But as the market draws to a close they are being forced to defect at an increasing rate.

Most proceed to a full listing, a move encouraged by the Stock Exchange, which has smoothed the journey in terms of costs and paperwork.

Some, however, are prepared to go downmarket. The USM offers considerable inheritance tax advantages which are not available once a company is fully listed. These benefits have survived on AIM; indeed some think AIM is an improvement. Another factor is dominant share stakes. Holdings above 65 per cent are frowned upon on the full market but can be kept on AIM.

Ramco Energy last week highlighted another reason for taking AIM. Because its oil and gas business is concentrated in one development it is ineligible for full stock market membership.

Although it wants a full listing it will initially settle for AIM. With a capitalisation approaching pounds 120m it will be one of the big players on the second-string market.

Fuller Smith & Turner, the family-controlled brewer of London Pride, is another which may be tempted to move to AIM. In the past it has talked about the inheritance tax benefits of the USM.

Haynes Publishing also has a difficult decision. It opted to move from the full market to USM even though its new base was already doomed. Its founder, John Haynes, wanted to switch part of his controlling stake to his children and take advantage of the USM inheritance tax benefits.

It, too, will have to move or drift into the investment wilderness.

For a variety of reasons, therefore, a steady trickle of USM groups will opt for AIM, which has been one of the Stock Exchange's more successful ventures, signing up more than 150 companies since last year's launch.

United Energy is one of a score of tiddlers reporting this week. Two heavyweights, light years away from the problems of the USM, give some punch to what would otherwise be a barren results week.

BAT Industries, the financial services to tobacco giant, offers first quarter results on Wednesday. The figures should be good. NatWest Securities is going for a 24 per cent profit advance to pounds 620m.

But the shares are likely to be more influenced by legal moves than trading considerations.

Litigation has already had a considerable impact, helping bring the shares, now 498p, down from the 595p peak touched in January.

NatWest analyst Tony Sullivan says: "We would expect the share price to float up between litigation events but there are many possible further negative litigation announcements".

Several US states are considering action, there is the possibility of indictments following investigations and the growing interest in tobacco of the powerful US Food and Drug Administration will cast a shadow over the industry.

Unilever, the Anglo-Dutch giant, has a quarterly exercise on Thursday. The market is looking for around pounds 510m (against pounds 463m), with a sharp improvement in Europe expected to be the key influence on the results.

Hopes are not running high for Kwik Save, the food discounter caught in the supermarket price war. Baked beans at 3p a can cannot be good for any retailer. Indeed the beans battle, with discounters and superstores vying to cut prices, seems to be aimed at Kwik Save, which for years had a niche place in the industry. It is expected to produce half-year figures of pounds 49.5m, down from pounds 61.6m.

The shares, at 468p, are bumping along near their 12-month low. They would probably be more depressed if the hovering presence of near 30 per cent shareholder, the Hong Kong Dairy Farm group, was removed.

Dairy Farm, controlled by Jardine Matheson, is no longer bound by an agreement not to increase its stake.

But after Jardine's dismal experience with Trafalgar House it may not relish taking on another underperforming group.