Six months after launch, AIM is well on target

NIGEL COPE

When the Alternative Investment Market was launched on 19 June last year there were concerns that the new exchange for smaller, growing companies might not work.

One fear was that too few companies would seek to join. Another was that institutional investors would find the stocks too risky and stay away. Both fears have proven unfounded.

Having kicked off with just nine companies, AIM has 117 companies with a combined market capitalisation of pounds 2.2bn. Total funds raised have reached pounds 76m. It is clearly early days and the market has been buoyed by the rise in the equity markets this year, but so far AIM is looking in rude health.

The Stock Exchange is certainly happy with its new baby. "We're pleased with the reception it has had and the image it has built for itself," a spokesman said.

Further good news is that institutions have started to back some of the larger issues such as Independent Radio, an investment vehicle set up to buy stakes in radio stations.

AIM has also begun to attract the attention of investment trusts. Beacon Investment Trust runs a trust that specialises in smaller companies including those on AIM. Baronsmead is launching a trust dedicated to AIM companies this month.

Robert Mitchell, one of the fund managers on the new Baronsmead portfolio, says: "We thought [AIM] was a good idea and the Stock Exchange needed to do something for smaller companies. I think it's a good, flexible market with enough regulatory back-up to satisfy investors. We're pretty pleased with the way it has gone so far." Baronsmead is forecasting that more than 200 companies will be on AIM by next year and is upgrading its original forecasts of a total capitalisation of pounds 2.7bn.

The performances of the new listings have also pleased, with the hits outweighing the misses. Pet City, the chain of pet superstores that joined the market in December, has proven one of the more colourful success stories so far. It eventually raised pounds 20m from the float, double the amount planned and a quarter of the total raised so far on the market. The shares raced from the placing price of 300p to 353p on the first day of dealings. With shares finishing the year at 382p the company is valued at more than pounds 93m. The placing also received significant institutional support.

Megalomedia, Maurice Saatchi's memorably named new multimedia vehicle, has also caught the eye. It is one of the market's best performers, with its shares up 170 per cent. Firecrest, whose technology enables telephone calls to be made over the Internet, saw its shares treble from its listing price of 40p to 122p by the end of the year. The worst performers include Baris Holdings, a builder whose shares collapsed after a rights issue.

As AIM has less arduous rules governing listings than other markets - including the USM, which is coming to and end - the role of the nominated adviser is seen as crucial.

The adviser acts as a kind of sponsor to the issue and helps the company at all key stages. Mr Mitchell of Baronsmead says: "The advisers' reputation is on the line every time they bring a company to market. If things go horribly wrong it could affect their work on other listings on other markets."

For investors one possible headache is that fewer of the AIM companies qualify for tax breaks than originally expected.

The other potential problem is the volatility of some shares. As many of the companies on AIM are small and at an early stage of development there are going to be a few disasters along the way. However, this is the risk that accompanies the opportunity for substantial gains that would not be possible with larger companies.