Capital Markets Corporate

July 2, 2020

AIM at 25: displaying its prominence

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In June AIM turned 25 years old – it has passed its somewhat risky youth and maturity is treating it well.

With stripped-down regulatory and governance requirements, the junior exchange has, over the past twenty-five years, offered companies an easier platform to raise capital. As the London Stock Exchange puts it, ‘AIM helps founders and entrepreneurs fulfil their growth ambitions and potential.’

However, the depiction of AIM as a junior exchange is outdated: the market thrives with the characteristics of maturity.

The junior exchange, which initially listed with just ten companies and a combined market capitalisation of £82 million, now has more than eight-hundred and thirty companies worth a total of £98 billion (May 2020). This of course includes some large household names, such as the drinks maker Fever Tree and online fashion sites ASOS and Boohoo. The latter has the largest market cap on AIM, valued at £4.5bn, putting it ahead of some of the lower members of the FTSE 100. As more companies on the market have become profitable, the wheels of time have led AIM into a state of maturity, very different to the risky newborn which emerged in 1995.

Where high-growth targets previously caused AIM companies to prioritise reinvestment, the companies that have grown significantly are now able to realign their investment priorities and pay out dividends to shareholders. Just over ten years ago, only one third of AIM’s constituent companies paid dividends, and whilst the current market conditions have seen several companies pause their dividends, as of May this year, AIM company pay-outs have tripled since 2012.

This emerging maturity of the AIM market certainly does not mean it has lost touch with its early values. The junior exchange still offers newcomers the best opportunity for growth. A key element of the attraction for many AIM investors is the opportunity to identify stocks that will deliver fast growth over a short period.  That can certainly be found among its constituents, often in sectors such as natural resources or pharmaceuticals.

For example, last year the top-performing AIM share was the Irish oil and gas explorer, Petrel Resources, which rose over 1,700%, whilst in the pharmaceuticals sector, Silence Therapeutics, saw returns of nearly 700%. More recently the supplier of coronavirus testing kits to over 80 countries, Novacyt, saw its share price increase thirty times over a three-month period.

AIM certainly has its shortcomings too, with questions often being raised around low levels of regulation leading to poor governance standards. However, the cut-back regulations of AIM – in comparison to the main FTSE index – has added to its attractiveness. Some companies prefer to list on AIM and therefore, somewhat ironically, despite the market being known for growth, some of the best performers have been low risk and high value.

Over the course of twenty-five years AIM has changed almost beyond recognition. Unlike its youthful self, full of risk, it is now an attractive platform for both investors betting on young companies for short or long returns, and seasoned investors looking for highly-valued companies. In other words, AIM has kept all the best elements of its early beginnings, while coming of age and assuming some of the characteristics of its older sibling – the FTSE index.

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