Interactive Investor

AIM: new floats aplenty in 2021, and more to come in 2022

7th January 2022 16:21

Andrew Hore from interactive investor

Our award-winning AIM writer reviews the fortunes of the many newcomers to the junior market last year, and highlights some likely new arrivals in coming months.

The Alternative Investment Market (AIM) underperformed the Main Market in 2021, but that did not stop it being a bumper year for AIM new admissions. There were 72 completely new companies joining the junior market during last year; including moves from the Main Market and reverse takeovers the total comes to 87.

Prior to the 2019 general election, there was talk about a pipeline of potential new AIM entrants that were waiting for the ending of uncertainty in order to come to the market. The initial Covid-19 lockdown meant further delays, but there were signs in the second half of 2020 that momentum was picking up, and this continued into 2021. Most of the activity was in the summer and near to the end of the year.

Despite underperforming the FTSE All-Share last year, AIM performance has still risen 25% since the beginning of 2020. This is similar to the FTSE SmallCap index and much better than the FTSE 100 index, which has fallen over that period. The previous outperformance of AIM has helped to attract new companies.

The amount of new money raised by new admissions and readmissions was £1.85 billion – the largest amount in any single year since 2014, when £2.6 billion was raised, and the sixth-largest amount in any year. Less than £500 million was raised in both 2019 and 2020.

Not all companies raised money when they were admitted or readmitted to AIM. Even so, the average amount raised per company was just over £21 million, which was down from £22 million in 2014, but much more than the £15 million average in 2020.

This relates to new money raised by the companies. Existing shareholders also raised significant amounts of cash in some of the flotations, on top of more than £6.8 billion being raised by companies already quoted on AIM.

Not a great start for old-fashioned firm

Online plumbing products retailer Victorian Plumbing (LSE:VIC) was the largest company to float on AIM. In June, at the placing price of 262p, Lancashire-based Victorian Plumbing was valued at £850 million. The company raised £11.6 million, which was slightly more than the expenses of the flotation, while existing investors cashed in shares worth £285.9 million.

The share price jumped to 330p by the end of the first day of trading when 13.4 million shares were traded. This was around the high for the share price, and it did fall back before management reported in October that market conditions had become more subdued. The trading statement with the full-year figures in December led to another slump and the share price has more than halved since flotation.

In early December, chief executive Mark Radcliffe bought three million shares at 96.65p each, while product director Neil Radcliffe acquired 529,267 shares at 94p each. To put this into perspective Mark Radcliffe sold more than 81 million shares and Neil Radcliffe sold 16.2 million shares in the original placing so the purchases are not as impressive as they might seem. Other directors, who did not sell shares in the placing, also bought shares.

Victorian Plumbing is an example of a company floating on the back of bumper trading. Online retailers had fared well during lockdowns, but the easing of restrictions meant that there was competition from the high street and less interest in home improvement.

The share price of online fashion retailer In The Style (LSE:ITS) has also halved since it joined AIM in March 2021. Easing of restrictions meant that the type of clothing being bought changed because people were going out more. This clothing is prone to more returns by customers, so that hit margins, while supply problems are also holding back profitability.

Broker Peel Hunt (LSE:PEEL) joined AIM at the end of September after a period of strong growth for AIM and high levels of fundraisings by new and existing companies. Existing shareholders, many of them employees, raised £72 million in the placing. Directors Simon Hayes, Darren Carter and Steven Fine sold the most shares.

In the year to March 2021, the brokers revenues more than doubled from £95.5 million to £196.9 million. There was a reorganisation prior to flotation, which changed the way that staff are paid. The adjusted pre-tax profit increased £19.4 million to £73.6 million. The latest interim revenues fell from £93.2 million to £71.4 million, while pre-tax profit fell from £25 million to £16.3 million.

In contrast, demand for building materials remains strong, and share prices in building products retailers CMO Group (LSE:CMO) and Lords Group Trading (LSE:LORD) have both risen by more than a quarter.

More winners than losers

There were 45 new admissions where the share price increased, one where it was unchanged and 26 where it fell. Parsley Box (LSE:MEAL), which was hit by supply problems, was the worst performer of the year with an 83% decline, and Victorian Plumbing and In the Style were the second and third biggest fallers.

All five of the companies that moved from the Main Market to AIM ended the year with a higher share price, although CML Microsystems (LSE:CML) was only 0.7% higher. Previously poor performers, such as HSS Hire (LSE:HSS) and Mothercare (LSE:MTC), have recovered since the move.

There was a mixed performance from the reversals and readmissions, with five higher and five lower.

There were seven new AIM companies that raised money via PrimaryBid during last year. Four ended the year with a higher share price and three with a lower one. That includes delivered meals company Parsley Box.

Bars operator Nightcap (LSE:NGHT) floated at the beginning of 2021 when the outlook for the sector was uncertain. Those brave enough to subscribe have done well, even though the current share price is around 50% below the high.

Oil and gas producer Kistos (LSE:KIST) also raised money through PrimaryBid when as an AIM shell it acquired the oil and gas assets. The share price has risen by 164.5% since that offer, and only four new admissions performed better.

Company

Code

Activity

Date joined

Price (p)

Current price (p)

% change

4basebio (LSE:4BB)

4BB

Healthcare

17/02/2021

118

615

421

Cornish Metals Inc (LSE:CUSN)

CUSN

Mining

16/02/2021

7

27

286

Bens Creek (LSE:BEN)

BEN

Mining

19/10/2021

10

32

220

Southern Energy (LSE:SOUC)

SOUC

Oil and gas

10/08/2021

6.5*

18

177

Belluscura (LSE:BELL)

BELL

Healthcare

28/05/2021

45

112

149

Saietta Group (LSE:SED)

SED

Cleantech

07/07/2021

120

255

113

Nightcap (LSE:NGHT) 

NGHT

Bar operator

13/01/2021

10

18.75

88

Likewise (LSE:LIKE)

LIKE

Floorcoverings distributor

18/08/2021

25

46.5

86

Supreme (LSE:SUP)

SUP

Consumer products

01/02/2021

134

244

82

Arecor Therapeutics (LSE:AREC)

AREC

Healthcare

03/06/2021

226

400

77

Source: London Stock Exchange. Prices as at 31 December 2021 *After eight for one share consolidation

Some of the larger share price increases appear to have been influenced by lack of liquidity. For example, cell and gene therapies and DNA vaccines company 4basebio (LSE:4BB) was de-merged from a German company and did not raise cash at the time of joining AIM; two-thirds of the shares are subject to a lock-in until February 2022. There have been days when thousands of shares are traded, but also others where there are no trades. There were 73,740 shares traded on the first day, but that was the most in a single day. On one day there were two shares traded and on another there were five shares traded.

Similarly, nearly three-quarters of the shares in US coal miner Bens Creek (LSE:BEN) are subject to a lock-in, although trading levels have exceeded one million shares on most days. The share price has more than trebled.

Cleantech was one of the most active sectors in terms of 2021 new admissions. Battery technology developer Amte Power (LSE:AMTE) floated in March, but the other six flotations were in the second half of the year and five were in the last seven weeks. Recycling Technologies has delayed its flotation until the spring. There are other companies, including i(x) Net Zero, which invests in sustainable technology companies, and clean energy technology developer Superdielectrics (where ITM Power founder Jim Heathcote is chief executive), which both plan to join AIM in January.

There were companies hoping to float by the end of last year that did not manage to do so, but many of those will be arriving in the coming months. Investors still seem interested, but there has been a glut of companies wanting to join AIM.

This is therefore a time when investors need to be particularly selective about which new companies they put their money into. Because it has become easier to float, the quality of the companies can be lower. It does appear, though, that valuations may be more realistic than they were during the summer.

Investors still have the cash to invest in attractive opportunities, and even with AIM not performing as well as it had – mainly due to some poorly performing large companies – there should be plenty of new entrants this year.

Andrew Hore is a freelance contributor and not a direct employee of interactive investor.

Andrew was recently named Journalist of the Year at the 2021 Small Cap Awards.

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