Impact of the economic downturn on Aim listed companies
28th April 2009
Despite a fall in value and liquidity of many Aim-listed companies, firms remain generally upbeat
Independent research reveals that the downturn in the financial markets has severely reduced the level of liquidity in Aim shares. In a recent survey among UK-based Aim-listed companies, only 6% of respondents felt there was a buoyant market in their shares, whereas the equivalent figure last year was 18%. This is shown in the figures below.
There is a buoyant market in our shares on Aim
| 2008 | 2008 | |
| Agree strongly | 3% | -- |
| Agree | 15% | 6% |
| Neutral | 23% | 13% |
| Disagree | 39% | 49% |
| Disagree strongly | 20% | 32% |
"Aim has frequently been criticised for low levels of liquidity and this has fallen further in recent months. However, from our research, it is clear that Aim is not the only market where liquidity has fallen: the Main Market has seen trading volumes fall by 15% in 12 months while Aim has experienced a decline of 16%. Given the difference in size between major FTSE companies and Aim-listed companies, one might have expected a steeper drop-off in trading for Aim companies but that does not appear to be the case," said John Cowie.
Perhaps not surprisingly, 70% of our respondents felt the Government could be doing more to kick-start liquidity by reintroducing more significant tax breaks for those investing in Aim companies. Reinforcing the point, the Quoted Companies Alliance recently made a strong case for raising the VCT and EIS gross asset and staff number limits. *
These are just some of the results revealed in a survey carried out by Smith & Williamson, the accountancy and financial services group. 123 Aim-listed companies, whose primary operations are in the UK, took part in the research. With 938 UK-based Aim companies **, our sample represents one in eight of the total.
The survey also confirms that five in ten respondents feel that Aim is more exposed to the credit crunch than more mature markets, as shown by the statistics below.
Aim is more exposed to the credit crisis than more established markets
| Agree strongly | 13% |
| Agree | 38% |
| Neutral | 32% |
| Disagree | 17% |
| Disagree strongly | 0% |
"Perhaps not surprisingly, fewer companies than in previous years are interested in making the move to the Main Market for a full listing. Indeed, only one in ten of respondents anticipated such a move and all of those felt that it would be at least a year before such a transfer would be likely. In contrast, last year's survey revealed that one in four were hopeful of making the transition.
John Cowie said: "Given the current state of the markets, companies don't feel that the added visibility of a Main Market listing would justify the cost of transferring."
He continued: "Interestingly, the number of those thinking about a delisting has barely changed since our survey began: in the last three years, the number has stayed at about one in five companies. It is no surprise, however, that the proportion of the sub-£5 million companies who think they should delist is much higher, at two in five. What we haven't seen, despite a good deal of publicity, is much support for PLUSmarkets yet. Only one in five see it as a viable alternative to Aim and still fewer, one in ten, would consider moving to it. As we would expect, the majority of those fall into the smaller (sub £5m) capitalisation group."
As shown in the table below, almost half of all respondents (49%) agreed that the introduction of International Financial Reporting Standards (IFRS) had been difficult. Again, the smaller companies appear to be the most adversely affected. 65% of this group reported that the application of IFRS had given them problems.
The introduction of IFRS gave us problems
| Agree strongly | 19% |
| Agree | 30% |
| Neutral | 11% |
| Disagree | 35% |
| Disagree strongly | 5% |
Business confidence is hardly unchanged since last year (this year 51% describe themselves as confident about the business outlook for the coming year, while the equivalent figure in the previous year was 52%). However, just over half (54%) of respondents reported that they may have to reduce headcount and almost half (49%) have already cut their marketing spend. That said, a fifth (19%) have actually increased their investment in marketing.
John summed up the results of the survey:
"Although no one can ignore the headlines about the economy, our survey indicates that many companies are upbeat about the future and are looking to ride out the storm. They may emerge a little leaner, but they should be fitter and most seem committed to a long term presence on Aim."
* Enterprise Investment Schemes and Venture Capital Trusts (EISs, VCTs)
From 6 April 2006, the reduction in the ‘gross asset' test reduced the size of companies which could qualify for these tax breaks and as a result fewer companies were able to raise funds from Venture Capital Trusts or under the Enterprise Investment Scheme. The revised upper limit for the ‘gross asset' test fell from £15m immediately before the relevant investment to £16m immediately afterwards to £7m and £8m respectively. From 6 April 2007, a maximum employees limit of 50 was introduced for EIS and VCT investments.
Details of the survey
FDs, CEOs and senior decision makers from 123 different UK-based Aim-listed companies took part in the survey.
** With 938 UK-based Aim companies on the market at the end of December 2008, the sample of 123 represents 1 in 8 of the UK-based companies on Aim.
Background on companies which responded:
Period of time listed on Aim:
| Less than 2 years | 19% |
| 2-5 years | 52% |
| More than 5 years | 29% |
Market capitalisation:
| Under £5million | 31% |
| £5million - £50million | 59% |
| Over £50million | 10% |
Approximate proportion of shares in public hands:
| Less than 20% | 10% |
| 20-50% | 39% |
| More than 50% | 51% |
For further information:
John Cowie, head of Aim, Smith & Williamson, the accountancy and financial services group
T: 020 7131 4333
PR queries:
Kate Harrison / Jess Koslow 020 7131 4228 / 4264
Note to editors
Smith & Williamson is an independent professional and financial services group employing over 1,500 people. The group is a leading provider of investment management, financial advisory and accountancy services to private clients, professional practices and mid-to-large corporates. The group operates from offices in London, Belfast, Birmingham, Bristol, Dublin, Glasgow, Guildford, Maidstone, North London, Salisbury, Southampton and Worcester.
Smith & Williamson Limited Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International.
Smith & Williamson Corporate Finance Limited Authorised and regulated by the Financial Services Authority A member of the London Stock Exchange A member of M&A International
Disclaimer
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
