AIM Industry Report 2017/18

56 57 ongoing availability of the tax relief. But, speculation as to whether tax relief will continue is nothing new. It’s easy, certainly in the current political environment, to forget what the advantages are of making more capital relatively readily available for these companies, and the positive impact it’s had. Recent analysis suggests that AIM incorporated companies are contributing about £15 billion to UK GDP and employ over 400,000 people. Part of the reason for this is those firms having a source of funds through the AIM market and there’s no doubt that tax incentives have certainly allowed these companies to be able to deliver these results. I think in general clients and advisers are becoming more comfortable with investing in AIM BR portfolios as a normal part of the estate planning process. Many now understand that the AIM market and a lot of these smaller companies are not as junior or alternative as the name of the index would imply. I think the ability to buy BR qualifying shares within an ISA has given clients a lot more flexibility to see their overall asset allocation in a tax efficient way and I’d expect this to be a continued source of demand over the coming years. We’ve seen quite a lot of advisers help clients build up assets in Blue Chip equities for a number of years, and the step change of going from equities into higher risk UK equities isn’t quite as dramatic for a lot of people as going from cash to equities. JW: That would be my view as well, because I’m of the view that AIM actually works pretty well. The AIM does have a reputation for having companies that, shall we say, push the edge of the envelope more than others and we’ve had our fair share of frauds. But that doesn’t mean you don’t get those kind of frauds and bad behaviour in other markets. I’m of the view that when you start putting too many regulations in place, they usually have obtuse effects. I think the role of Nomads, who generally do a good job, is a much better way to try to prevent misbehaviour. And investors and managers don’t have to buy these things – if something doesn’t fully stack up, no matter how good the story is, you can just walk away from it and go and buy something else that does stack up. That’s one of the reasons for thorough due diligence. One thing we would like to see on AIM is more research and more investors searching out interesting companies and we think that MiFID II is going to do the exact opposite of that, because people are going to say, well why bother doing research on small companies? You’re going to have, if you’re lucky, the brokers doing research on the companies that their corporate stock broker or Nomad offers and that’s it. The whole purpose of the the MiFID II rules is to make things more transparent for investors and to save them money by unbundling the research fee, but for AIM stocks and small caps in general it may end up achieving the opposite. SD: What would be very interesting, and I’m not sure whether this will ever happen, would be if companies in the Small Cap side of the main market actually realised that they were gaining nothing by being on the main market, but lost a lot by not getting BR relief, etc, and moved their companies to AIM. Many might consider that, on the main market, they are not being picked up by funds, not really being traded that frequently and their listing costs are higher. They might have the kudos of being listed on the sole main market, but actually if they looked at their nearest peer who’s on AIM, their stock’s probably carrying a 5%, 10%, 15%, maybe even 20% premium being on AIM because of the availability of BR and because there are tax relief sectors around being on AIM that they’re not achieving. It just requires that they wrap their heads around the conceptual point that they are not taking a step backwards by moving to AIM, but simply putting themselves in a more advantageous position for their investors. There is no difference in being on AIM to being on the main market. All the stocks are ISA-able now, it’s free of stamp duty which again makes it cheaper for people to acquire their shares, so that plus the benefit of BR and the listing cost for quoting the company would seem to make perfect sense. MS: We would be happy with quite limited changes; possibly some tightening up on potential shareholder dilution through option grants would be nice. Like Justin, my biggest concern is the impact from MiFID II on research coverage. Decent independent research is the lifeline between companies and investors to channel business progress, allowing appropriate valuation and an appetite for capital raises to further growth. If there is a substantial reduction in research coverage, it could be very damaging to smaller AIM companies. However, this may also provide attractive investment opportunities for investors such as ourselves, who are willing to do their own research on these companies. AMS: The biggest concern has to be liquidity. That is my biggest concern and I don’t think there’s much that can be done about that except that companies have to continue to perform and that therefore, the expectations of those companies aren’t too high. You know, different companies grow at different growth rates but it’s very important that the market expectations are sensible. Like Matt and Justin, I’m also concerned by the implications of MiFID II and that it will reduce the number of people providing objective research and information about companies and therefore, that company share ratings will not reflect what they really ought to be, which will mean that we’ll have a slightly inefficient capital market, which will be to the detriment of the UK PLC. I’d say that 90%+ of the companies which are listed on the London Stock Exchange, whether it’s the main board or the AIM board, are well under the radar of the investment banks who are going to be the only people able to afford to provide the independent research. This is a structural concern which has really been increased by MiFID II. And it’s annoying that the broking community hasn’t been more forceful in addressing this and pointing out that fewer people providing objective research will mean a higher cost of capital for UK SMEs. SB: I totally agree that I’d like to see some kind of initiative that would promote more independent research into AIM companies, without that either being paid for by the shareholders of the companies or the brokers, who I feel slightly sorry for in the current situation, because the MiFID changes are a brutal adjustment to the way they operate. And then, just keeping the quality up. We’ve had much higher quality businesses coming on to AIM over the last couple of years than we’ve seen for a while. The last couple of years have been very strong for AIM so I wonder if there is some kind of correlation between the robustness of the companies that are floating and the amount of money that’s being raised. And they’re larger and better fundraises as opposed to lots of smaller deals. SP: We genuinely believe that the failure of the USM led to some really good lessons being learnt such that when AIM was launched in 1994 it was positioned in such a manner that it stood a great chance of succeeding. The LSE and the Treasury held their nerve when market weakness caused the market to decline considerably and in Warren Buffet terms it became clear “who had been swimming naked”! The market was left to manage itself with the AIM Team bringing in some gentle controls of the Nominated Advisers (“Nomads”) and again an evolutionary improvement in the expectations of standards of behaviour and hence outcomes. The investing public and investing professionals are now fully aware of the risk profile of AIM traded companies, hence why some qualify for EIS and VCT investment and most of them qualify for Business Relief. “We genuinely believe that the failure of the USM led to some really good lessons being learnt such that when AIM was launched in 1994 it was positioned in such a manner that it stood a great chance of succeeding.” — SHARON PRIEST, BLACKFINCH INVESTMENTS LISA BEST ANDREW MARTIN SMITH SHARON PRIEST SAM BARTON MATT STRACHAN JUSTIN WAINE JON GOULD STEPHEN DANIELS “No single sector dominates the market, but the most popular sectors are Mining, Software and Computer Services, and General Financial.”