Liquidity Drivers on AIM

Illiquidity continues to be one of AIM’s biggest bugbears, but a hundred companies on the market are bucking the trend

One of the main criticisms of AIM has been its presumed lack of liquidity. Liquidity Drivers on AIM, published by our sister title Growth Company Investor in association with accountancy firm BDO Stoy Hayward, shows that most of the market’s companies saw less than one tenth of their shares traded from August 2008 to January 2009.

This will surprise few who have worked with AIM during those six months. Christopher Searle, a partner at BDO, says that poor liquidity resulted not only from the general hiatus affecting all growth company investing, but also from the implosion of Icelandic bank Landsbanki, reducing the number of market-makers dealing in AIM stocks.

The research reveals a mixed picture. Ten per cent of the market, or 166 companies, had at least 50 per cent of their shares traded during the period, and 106 of these – dubbed the ‘pre-eminent companies on AIM’ – have a market capitalisation of over £10 million. Among them are household names such as ASOS, Carluccio’s and YouGov, resources companies including Peter Hambro Mining and Mediterranean Oil & Gas, and investment concerns such as hedge fund RAB Capital, whose share price tanked last year following a failed bet on mortgage lender Northern Rock.

Pre-eminent stocks
On average, these companies posted sales growth of 347 per cent, compared to 253 per cent across the whole of AIM (though profitability growth was lower than the AIM average). They typically have six market-makers to AIM’s average of less than four.
Most significantly, they have a mean of 3.6 non-executives compared to three for AIM companies as a whole, and in only five cases out of 106 are the roles of chairman and chief executive combined, compared to more than double that proportion in the wider market.

Of course, these factors are interrelated in complex ways: the report’s pre-eminent companies could have more non-executives because they are larger and therefore more liquid, rather than improved liquidity stemming from better corporate governance. But Searle is in no doubt that separating the role of chairman and chief executive makes investors treat a company more seriously. ‘Investors will expect the two to be separate, even for small AIM companies, unless there’s a very good reason for it.’

To order the full report, Liquidity Drivers on AIM 2009, call 020 7250 7056 or email Calvin.Green@vitessemedia.co.uk.