Interactive Investor

AIM stocks Q1 stats: market crumples in face of global tensions

1st April 2022 16:10

Andrew Hore from interactive investor

As our award-winning AIM writer expert reveals, investors’ increasing focus on fundamentals rather than promise has caused widespread damage to smaller companies’ share prices.

After a strong Covid pandemic performance, AIM has become a laggard this year. AIM is not the worst-performing international market since the end of 2021, but outperforming the Russian market is hardly an achievement.

The Shanghai CSI 300 index has fallen slightly more than the FTSE AIM UK 50 index, which is the best-performing AIM measure with a 13.2% decline in the first quarter of 2022. The FTSE AIM All-Share index fell 14.3% and the FTSE AIM 100 index was the worst performer with a 16% decline. This appears to be down to the greater number of large pharma, technology and retail companies in the AIM 100.

It should be noted, however, that AIM is up from its low in March and ended the month slightly higher than the index level at the end of February.

By comparison, the FTSE 100 index has gone from one of the worst performers to the second-best performer in the latest quarter, after the Brazilian Bovespa Stock Index. The only other index in positive territory is the Mumbai S&P BSE 100, although the FTSE All-Share index and the FTSE 350 index have fallen by less than 1% during the period.

The FTSE Fledgling index is 2.4% lower in the quarter, but it has significantly outperformed AIM. The Fledgling excluding investment companies has done even better. However, the size of Fledging constituents is much smaller than on AIM, so a combined index of the Fledgling and AIM would still be influenced mostly by the fortunes of AIM.

The Japanese and US markets are the next-best performers, with the Nikkei 225 3.4% lower and the Dow Jones Industrial index falling 3.6%. However, Nasdaq has fallen by just over 8%, reflecting the higher proportion of technology and pharma companies on the market. The FTSE All-World index fell by 5%.

All the prominent markets have grown over a 10-year period, except for the FTSE China 50 index, which has fallen by 9%. The Hang Seng index is 9% ahead over 10 years but has fallen over other, shorter time periods.

Times have changed

Things have certainly changed. One year on from the March 2020 low, AIM had outperformed the FTSE 100 index and all the other major stock market measures around the world. The FTSE AIM All-Share index doubled from the low on 19 March 2020. Nasdaq rose by 81.5% in the same 12-month period, while the German DAX index rose by 70%. The FTSE 100 was 30% higher.

AIM has declined in the subsequent 12 months, not just in the past three months. The recent peak was achieved last September. Only two of the largest 20 AIM companies rose in price in the first quarter.

The big change is that fundamentals are more attractive to investors now. Promise is not enough for a high share price anymore, while any disappointment will result in a sharp, and probably disproportionate, decline in a company’s share price.

For example, the share price of legal services provider Knights Group Holdings (LSE:KGH) has halved so far this year, with most of the decline coming when it warned that growth was slower than expected and that there were signs of weaker business confidence among its clients. Yet underlying pre-tax profit is still likely to rise from £12.2 million to £18 million, including a contribution from acquisitions.

Knights has gone from a relatively high prospective multiple to one that is less than 10 times prospective earnings, even though earnings are still set to grow steadily.

Energy and utilities sectors outperform

The best-performing AIM sectors are energy, utilities and property. All three have risen so far this year, with energy rising 5%.

It is the large companies that dominate the performance of the sectors. The top three performers in the AIM 100 are oil and gas companies benefiting from the sharp rise in energy prices.

Oil and gas producer Serica Energy (LSE:SQZ) tops the list. It had to temporarily shut down production at the Rhum field because of a fault. It resumed during March. Sericas other producing fields were not affected, and it was producing more than 15,000 barrel of oil equivalent per day by optimising the production from the Bruce field during Rhums shutdown.

The higher oil price means that even more cash is being generated. Sharepad consensus estimates show free cash flow of £198 million, and it could rise to more than £300 million in 2023. Serica is currently valued at £1.07 billion, following a 65% rise in the share price in the first quarter.

Alaska-focused oil and gas explorer Pantheon Resources (LSE:PANR) is the second-best performer in the AIM 100; its market capitalisation has nearly reached £1 billion after a 52.1% share price improvement. Recent drilling has reported successful drilling that confirms the presence of high-quality, light oil at Talitha #A and Theta West #1.

Early in March, PetroTal Corp (LSE:PTAL) reduced production due to social protests near its oilfields in Peru. This meant that there was a small decline in the share price during March, but it was still 50.6% higher in the quarter. There had been record production earlier in the year and an increase in oil reserves.

Looking for alternatives

Alternative energy companies have also been back in demand. Their share price falls have been a major factor in the underperformance of AIM over the past year, just as they were a reason for outperformance in the previous year.

Fuel cell companies have done better over the past couple of months, although the share prices have not got back to the level they were at the beginning of the year. The Ceres Power (LSE:CWR) and ITM Power (LSE:ITM) prices have recovered most strongly.

Even AFC Energy (LSE:AFC) has recovered since February, despite Roman Abramovich holding a 3.3% stake.

Risers and fallers

Property companies have tended to be relatively steady. Secure Income REIT (LSE:SIR) is the 10th largest company on AIM, so its 9.6% gain would have been a factor in the small gain by the sector. The income helps: Secure Income REIT intends to increase its total dividend from 15.2p a share to 18.2p a share. Utilities has few constitutes so it is not a very representative sector. 

Biggest risers on AIM in Q1 2022 

 

Name

Sector

Price

Market Cap (m)

Q1 change (%)

Harvest Minerals (LSE:HMI)

Industrial Metals and Mining

15.75p

£29.8

274

Tintra (LSE:TNT)

Travel and Leisure

185p

£24.7

271

Bens Creek Group (LSE:BEN)

Oil, Gas and Coal

90p

£318.6

184

IGas Energy (LSE:IGAS)

Oil, Gas and Coal

32.85p

£41.3

168

Hurricane Energy (LSE:HUR)

Oil, Gas and Coal

9.755p

£194.3

146

Chariot (LSE:CHAR)

Oil, Gas and Coal

17.525p

£144.9

139

Egdon Resources (LSE:EDR)

Oil, Gas and Coal

3.6p

£18.6

134

Borders & Southern Petroleum (LSE:BOR)

Oil, Gas and Coal

1.7625p

£9.1

117

Union Jack Oil (LSE:UJO)

Oil, Gas and Coal

29.75p

£33.5

107

Angus Energy (LSE:ANGS)

Oil, Gas and Coal

1.425p

£18.6

104

Source: SharePad

       

The worst-performing sector is retail, which has fallen by more than one-quarter, while healthcare has not done much better. 

Do not underestimate the influence on AIMs performance of online retailer ASOS (LSE:ASC), which moved to a premium listing on 22 February. Between the end of 2021 and that date the share price had already fallen by 18.4%; it has fallen further since then, but it will no longer be included in performance tables for AIM.

Even though ASOS has a lower market capitalisation than it once had, that fall in the first few weeks of the year will have been a major factor behind the slump in the AIM All Share and the retail sector over the same period.

Boohoo (LSE:BOO) has fallen by 28% over the quarter, after a disappointing trading statement in December due to problems with its international supply chain. Wines retailer Naked Wines (LSE:WINE), which benefited from booming customer sign-ups during lockdown, has drifted sharply lower even though there have been no trading announcements. Victorian Plumbing (LSE:VIC) was the second worst performer in the AIM 100 as trading continues to disappoint since last years flotation.

The share price falls of the large pharma companies had more effect on the performance of AIM. HUTCHMED (China) Ltd (LSE:HCM), the second-largest company on AIM by market capitalisation, fell by 44.8%.

The largest company is life science reagents supplier Abcam (LSE:ABC), which fell by one-fifth. Pre-tax profit is set to nearly double to £75.3 million, but even after the share price decline the prospective multiple is still 50.

These two companies account for 5.5% of the AIM 100 weighting and slightly less of the AIM All Share.

 Biggest fallers on AIM in Q1 2022

 

Name

Sector

Price

Market Cap (m)

Q1 change (%)

Advance Energy (LSE:ADV)

Renewable Energy

0.215p

£2.2

-94.9

Synairgen (LSE:SNG)

Pharmaceuticals, Biotechnology and Cannabis Producers

21.73p

£43.8

-89.4

Sensyne Health (LSE:SENS)

Health Care Providers

11.25p

£18.7

-86.0

Omega Diagnostics (LSE:ODX)

Medical Equipment and Services

4.15p

£7.6

-85.9

Challenger Energy (LSE:CEG)

Oil, Gas and Coal

0.095p

£9.1

-85.4

Morses Club (LSE:MCL)

Finance and Credit Services

11.6p

£15.6

-80.1

IG Design (LSE:IGR)

Personal Care, Drug and Grocery Stores

72.5p

£70.3

-73.8

Diurnal (LSE:DNL)

Pharmaceuticals, Biotechnology and Cannabis Producers

15.75p

£26.7

-73.7

Petroneft Resources (LSE:PTR)

Oil, Gas and Coal

1.15p

£12.3

-71.8

MySale (LSE:MYSL)

Retailers

1.675p

£14.7

-69.8

Source: SharePad

 

 

 

 

The AIM food and beverage sector is another poor performer. Fevertree Drinks (LSE:FEVR) has been a major contributor to the previous strong performance of AIM, but the share price has declined by one-third even before the shares go ex-dividend on 7 April. A final dividend of 15.99p a share along with a special dividend of 42.9p a share is being paid – together more than 3% of the share price. Increasing costs will hold back profit, even though sales continue to improve. In 2022, Peel Hunt expects pre-tax profit to decline from £55.6 million to £53.5 million, with operating margins falling from 17.9% to 14.9%. 

That decline is partly offset within the index by improving trading at palm oil producer M P Evans (LSE:MPE), which has risen by one-quarter; but is much smaller than Fevertree so it has a much lower weighting. Concerns about the supply of alternatives has led to a large rise in the palm oil price, just as MP Evans is increasing its production.

Companies that have been hit because of their Russian activities include Eurasia Mining (LSE:EUA). A year ago, the Russia-focused miner was defying gravity and the share price had slipped back before diving due to the invasion of Ukraine.

 

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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