With the third quarter now ended, our award-winning AIM writer picks over performance in 2021 so far and looks ahead to the final three months of the year.
Smaller AIM companies have been outperforming their larger AIM counterparts during the first nine months of 2021. The FTSE AIM All Share index has risen more than twice as much as the larger measures – FTSE AIM UK 50 and FTSE AIM 100.
The AIM All Share rose by 7.5% in the first nine months of 2021, in contrast the AIM 100 added 3.5% and the AIM UK 50 was 2.8% higher.
That is because some of the larger AIM companies with the greatest weightings, such as online fashion retailers and alternative energy companies, have performed poorly. They still constitute a significant proportion of the AIM All Share index, but they do not dominate it in the same way as they do the AIM 100 and AIM UK 50.
In the same period, the FTSE 100 has risen by 9.7%, although it is underperforming over a longer period, while the FTSE Fledgling index of the smallest eligible fully listed companies has risen by 26%. A potential bid for French Connection (LSE:FCCN) and the recovery of companies that had got into difficulties, such as Carclo (LSE:CAR), have fuelled the bounceback. The Fledgling has also outperformed AIM over one year.
Sub-sectors: who’s up and who’s down?
Most of the AIM subs-ectors had positive performances in the first nine months of the year, although five have declined.
Some of these AIM sub-sectors have a handful of constituents, so their size means that the performance does not necessarily conform to a broader based version of the sector. For example, there are three companies in automobiles and parts – acoustic materials supplier Autins (LSE:AUTG), brake technology developer Surface Transforms (LSE:SCE) and recently floated electric motor technology developer Saietta (LSE:SED). All three have performed strongly, although Saietta floated in July so was not included for the full period. Even so, it was the second-best performing sub-sector with a 41.4% improvement.
Media is the only sub-sector that did better than automobiles and parts with a 42.6% increase. There are 26 companies included in this sub-sector, so it is a better representation. This includes Tremor International (LSE:TRMR), the online advertising technology company that joined Nasdaq during the period, which sparked a 73% increase.
Marketing services provider Next Fifteen Communications (LSE:NFC) more than doubled in the period, while marketing analytics firm Ebiquity (LSE:EBQ) has nearly trebled. Advertising agency M&C Saatchi (LSE:SAA) recovered after its previous accounting problems.
Financial services is another strong performer. Sustainable investments asset manager Impax Asset Management (LSE:IPX) has risen by 65% in the first nine months, having added 79% last year. Impax had £34.4 billion under management at the end of June 2021, which is a 15% increase over the quarter. This was a combination of new funds and market movements. Over 20 years, the share price has risen by 2,120%.
The share prices of wealth management companies, such as Brooks Macdonald (LSE:BRK), have also done well as assets under management grow on the back of stock market performance.
Construction and materials companies have benefited from high demand for building materials and construction products. The property sector has also recovered this year and it is back to just below the level it was at the beginning of 2020. Investor concerns about rent collection proved overdone and the AIM companies do not tend to have much exposure to retail. In fact, there is more of a weighting towards warehousing, which is in demand.
Healthcare has been solid in the first nine months of 2021. Companies that had previously been boosted by Covid-19 testing or other related demand have tended to fall back. The worst performing healthcare company is last year’s star, Novacyt (LSE:NCYT), which has lost two-thirds of its value in the first nine months of the year, although it is still well ahead of the price at the beginning of 2020.
Hutchmed China (LSE:HCM) is valued at more than £4 billion and has become the largest company on AIM, although because of FTSE regulations on liquidity and ownership not all its market capitalisation counts in its index weighting. It has a 3.26% weighting in the AIM 100, while the smaller Abcam (LSE:ABC) has a 2.64% weighting. The same is true for the sub-sector.
Pharmaceutical services provider Ergomed (LSE:ERGO) has done particularly well as it increases its exposure in the US. Woundcare company Advanced Medical Solutions (LSE:AMS) shares have recovered as elective surgery numbers start to recover.
Retail is the worst-performing sub-sector, which is not a surprise when ASOS (LSE:ASC) and Boohoo (LSE:BOO) have both declined by around 37% over nine months, and they are some of the worst performers in the third quarter. Their trading statements are no longer beating expectations, and higher freight costs and delays are hampering the businesses.
Other retailers have done better. Motor dealers have bounced back with Vertu Motors (LSE:VTU) and Marshall Motor Holdings (LSE:MMH) both rising by more than 50%. That was before the latest profit upgrade for Marshall Motor when Zeus Capital increased its 2021 pre-tax profit forecast by 24% to £52.1 million, following a trading statement. There are supply problems, but this has been offset by improvements in used car margins.
It may seem strange that the energy sector has fallen by nearly 5% so far this year given the hike in oil and gas prices, but the 2021 outperformance was based on the alternative energy companies, such as ITM Power (LSE:ITM) and Ceres Power (LSE:CWR).
The second worst performer in the AIM All Share is wave power company SIMEC Atlantis Energy (LSE:SAE), while fuel cell technology developer Proton Motor Power Systems (LSE:PPS) lost more than three-fifths, having been one of the top performers last year. AFC Energy (LSE:AFC) fell by one-third.
Oil and gas share prices are rising. Four of the top 10 performers in the AIM All-Share are small oil companies, although the worst performer is also an oil company. North Sea-focused oil and gas producer Serica Energy (LSE:SQZ) is set to become highly profitable as production increases. The share price has doubled over nine months and the is the best performer in the AIM 100 in the third quarter.
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The basic materials sector has slumped by nearly one-fifth having been a strong performer last year. Gold explorer Greatland Gold (LSE:GGP) was one of the top performers among the larger AIM companies last year. It has become one of the worst and other miners have fallen back, including many lithium companies, where the share prices had been pushed up last year.
The background for the fourth quarter is a tough one for companies with transport and fuel supply problems.
There are companies that have positioned themselves for the problems that have come to the fore in recent months. Some companies have set themselves up to cope with these challenges. NWF (LSE:NWF) delivers fuel and handles food distribution for well-known brands. It gave drivers a pay rise earlier in the year and reduced reliance on agency drivers, so trading is in line with expectations as pay rises were passed on to customers.
Other companies have had problems, though. The recent trading warning by Parsley Box (LSE:MEAL) could provide an indication of what could happen to other consumer-focused companies, as a consequence of the lack of HGV drivers and other logistical problems.
Demand for the meals delivered by Parsley Box has been growing, but the company has not been able to satisfy that demand due to lack of supply and it has cut back marketing spend. The share price had already halved since flotation in the spring, and it fell by a further two-thirds at one point. The overall decline in the share price since flotation is more than 80%.
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This response is due to the high valuation of the business when it floated and the sharp reduction in expectations. There are other companies where share prices are assuming high growth rates that could be scuppered by logistical problems. Even ones with more modest ratings could also be hit because investors seem to be jittery about warnings at the moment.
Inflation could become a problem for smaller companies, although building materials suppliers appear to be able to pass on price rises, it may be more difficult elsewhere.
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