Secondary funding for Aim-listed companies remains low but sentiment on the sector as a whole remain...
Secondary funding for Aim-listed companies remains low but sentiment on the sector as a whole remains positive. Gervais Williams, head of UK smaller companies fund at Gartmore, says: "There have been some failures but in general the market has been a great success." He notes the market did see a drop recently following the sell off in technology back in March and April.
The small cap market has performed well over the past year to 22 September, returning 32.56%, Williams says. The Aim index has returned 85.61% since its launch. However, as a result of the technology correction in April the index has fallen for the year to 22 September by 7.96%. Williams says one of the challenges involved in selecting stocks within the Aim universe is if the market is suffering a downturn, companies which are already experiencing tight liquidity will face greater problems. Aim companies often require secondary funding to maintain a substantial flow of equity.
When looking at stocks within this market, Williams says each company is considered for investment in terms of how much cash injection is needed in order maintain sufficient growth levels. If the money needed is high and will only sustain the company for a short period of time, then secondary funding is required and they are likely to have a difficult time finding a willing investor.
Bill Brown, director of Aim Equities at Friends Ivory & Sime, echoes Williams' positive sentiment on the market.
Brown believes Aim funds have performed well over the past year due to the tax advantages they provide. If private investors hold Aim stocks for four years, the capital gains are taxed at a lower rate.
Brown says: "Friends Ivory & Sime has invested across the board, but does have a technology bias."
He has invested in stocks such as Finity Internet, BATM, Eurosales Finance and SurfControl, which have all performed well and become attractive.
Transend, for example, has gone from £1 to £22 in 12 months, so there is scope to make good money.
He believes new issues will continue strongly, and likes entrepreneurial companies.
Gartmore likes and holds Keryx, a pharmaceutical company, which has a £125m market cap. Minor Planet, which has a £400m market cap, is a truck information systems company that has vastly improved in efficiency, Williams says.
He says: "New issues are raising the capital of the companies and moving them into the main markets."
Going forward, Williams likes technology stocks, but adds there is room for individual disappointment, as with all Aim stocks. He also likes energy companies, especially oil and gas. While mining commodity prices are dropping, Williams is keen on Aquarius Platinum, an efficient firm with platinum mines in South Africa.
He says: "It is looking good as there is platinum demand for fuel cells, which will become popular in the next few years. This means the platinum shortage will get worse, which is opportune for companies such as this."
Brown agrees that mining stocks are reaping rewards, mentioning Brancote and Aurion, which has an enormous upside due to its coal and iron reserve in Australia and a very low valuation.
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