The markets have been turbulent over the last 5 months and the shakeout was probably needed to “buy some reflection” time for investors and analysts as the FTSE and AIM markets sat at 3 year highs at the end of 2013. However I believe that the AIM market correction has not only been indiscriminate but has also been overly affected by a few specific issues which has then had a knock on effect on well run, well managed niche growth stocks. The first issue is that the AIM market had some notable casualties over the last few months and these companies made up large proportions of the AIM market. BLUR has fallen from 800p to 80p as issues surrounding its business model emerged, and incidentally I advised selling BLUR after the initial issues emerged in early 2014 at 600p. BLNX and QPP have both lost 50% or more of their value since they were targeted by short sellers who, as happened with BLUR, questioned their business models. Other notable AIM “giants” of the last few years such as XEL, ACHL, MONI, GBO and others have steadily declined over the last year or so, but were once the favourites of share magazines and private investors at prices much higher than they enjoy currently. The market capitalisation of these stocks, as a percentage of the AIM index, has had a massive effect on the market in general.
The second issue is one that riles me, it is the image given to AIM by those companies whom I believe have no place on the market and whom give the index its “casino” reputation which is unfair as AIM has rewarded investors with huge gains from hundreds of well run, well positioned stocks over the last 3 years especially, some of which have steadily enjoyed 500-1000% gain. It seems that the issue of Chinese corporate governance has once again resurfaced with a wave of de-listings or issues which will probably lead to de-listing resulting in shareholder funds being wiped out. The worst example was REG, whom I warned about in 2011 when it listed on AIM, where the CEO subsequently sold a huge chunk to “meet market demand”, I questioned this at the time, and I was right as REG then lost 99% of its valued and de-listed last year. In this last month it was followed by LED, GWIN and before those it was BSST who have or will more than likely de-list leaving investors with nothing.
The third issue is stocks whose sole purpose, it seems, is to stay listed on AIM as shell companies or as “ghost” companies and simply use their listing so as to secure funds to pay management while delivering nothing of value to the market or to shareholders. I obviously won’t name any but I would suggest that we all could immediately name at least 10 without thinking too hard, and most will be in the very vague business of “natural resources” or whose purpose is to stay listed while “seeking value enhancing acquisitions.”
To conclude, the AIM market, is a fantastic environment for fledgling companies to start, thrive and become great ambassadors for our Index. The thirst for AIM was seen in late 2013 when the Chancellor allowed them to become ISA-able, which led to a triple digit increase in money flow into the market. There hasn’t been a lot of fresh funds available over the last few months but there are signs this week that the AIM market is being taken seriously once more, but in my opinion we must lose around 20% of the companies from the Index to help clear up credibility issues. I believe after this pause for breath, some well chosen stocks will go on to enjoy triple digit percentage gains over the next year.
Article by Riddler