Quoted Business - What Next For Aim? Expert Views In The Spotlight

In this issue, we get a range of views from senior

professionals working with or for Aim-listed companies on the

state of the market and what to expect over the next 12 months.

We also look at the LSE's new equity research service, PSQ

Analytics, and give top tips for managing final salary pension

schemes.

Lessons to be learned

The state of Aim

Quoted Business sought the views of four

professionals working within the small cap market to gauge

current sentiment - a managing director, a non-executive

chairman, an investor relations specialist and a Nomad.

In your experience, are investors still upbeat about Aim or

have you seen a tightening of investors' belts?

David Bramhill

Without doubt there's been some 'belt

tightening' in the last few months. However, many

investors are sectorspecific and those brave enough to make

investments in Aim-listed oil and mining companies have

been well rewarded.

In my opinion there are also still many Aim companies in

other sectors about which to remain upbeat.

Frank Lewis

Generally, investors have not had a good experience on

Aim, with certain exceptions. I believe there is still an

appetite for natural resources, oil and gas. The change in

tax law for venture capital trusts (VCTs) has also not

helped. In the current economic climate, institutional

investors are being very careful as they need to support

their current investments, which may need secondary

fundraisings.

Azhic Basirov

The number of new Aim issues was significantly down for

the first six months of this year compared to the same

period last year. New issues have been running at an

average of about ten per month, but of these, nearly half

are reverse transactions, and many of the rest have been

introductions raising little money. The only primary new

issues raising significant sums have tended to be natural

resources companies, so investors are being highly

selective at present.

Tarquin Edwards

I think we are seeing a much more cautious response from

the investment community, with both institutional and

retail investors being significantly more 'picky'

over which stocks and sectors they will look at. Volumes

have been much reduced, and the little volume there is

appears to come largely from the retail investor -

larger institutional investor interest looks to have been

very quiet. On the new issue and secondary issue fronts, a

much greater risk premium is being applied, with support

veering away from those smaller companies with unproven

business models and emphasis being placed on tangible

sales, low-cost bases and minimal debt.

Does the current economic situation offer opportunities for

Aim companies?

DB

A difficult question. I suppose in tough times, those

Aim companies with cash resources and supportive

institutions can make selective acquisitions.

FL

The current economic climate does offer opportunities

for Aim companies. It allows the successful ones to acquire

or merge with the weaker ones (who should not have listed

in the first place) at reasonable prices, using paper or a

mixture of paper and cash, and thereby strengthen their

position in the marketplace.

AB

Valuations for smaller companies are down significantly

as a result of general investor sentiment and concerns over

the economic slowdown. As a result, there is value emerging

in the small companies market and there are acquisition

opportunities to be grasped by well-funded companies.

We're seeing a lot of interest in acquisitions or

public-to-private deals, but, in many instances,

implementation remains challenging because of a scarcity of

debt funding.

TE

Yes, particularly if you are ungeared and have cash.

With valuations down, I wouldn't be surprised if we see

increasing consolidation across a number of sectors as

well-financed companies take advantage of low valuations to

acquire or merge with their less well-placed competitors.

The Nomad The investor re The non-executive chairman

lations specialist

Are there lessons to be learned from the hiatus of the last

eight months?

DB

An emphatic yes ? make sure you're cashed up

for the unforeseen. Remember Dickens' cautious

accountant Mr Micawber in David Copperfield.

FL

There are always lessons to be learned. The main one is

that there are economic cycles. Because of the benign

interest rates over the last few years, people have tended

to forget or ignore that there are economic cycles. Also,

institutions have the 'herd instinct' ? they

all invest together or they shut up shop together, so

timing is an important issue.

AB

The most striking lesson is the effect that easy and

cheap credit has had on driving the bull market and the

rapid reversal of this trend once the credit tap has been

turned off. The regulators are already looking at this,

particularly in the US, where the increasingly blurred

boundaries between investment and commercial banking have

made it harder for the Federal Reserve to intervene where

necessary. As far as the smaller companies are concerned,

the lesson has been to design and maintain a capital

structure (in both debt and equity terms) which will remain

resilient in a downturn.

TE

I would have thought there are certainly lessons to be

learned, but to my mind, the bigger question is: will we

learn from those lessons? History suggests not!

Are there any grounds for optimism in the near term?

DB

Yes, of course. In any scenario a wellmanaged company

will nearly always see the tough times through. If

management can't remain optimistic then the investors

will sense this. From my experience the best time to convey

the company message is during the tough times. Investors,

both retail and institutional, will remember this in the

good times. I'm the managing director of an oil

company, so it's not difficult for me to have grounds

for optimism.

FL

I do not envisage a major improvement in new listings

until the autumn. It would also depend on no further shocks

hitting the financial and banking system. I am more

optimistic about 2009.

AB

We need to see that the full impact of the credit crunch

has taken its course before optimism returns to the market.

As such, further write-offs by major financial institutions

in the current and next quarters will be highly relevant to

market sentiment. Some comfort can be drawn from the fact

that regulators have moved decisively, although, in some

cases, not quickly enough to ensure the stability of

financial markets. We won't really have a clear picture

until the end of the summer on whether the credit squeeze

has triggered a major slowdown in the world's leading

economies or whether we're through the worst.

TE

Who knows if we are approaching the end of the credit

crunch, but I suspect that we will continue to see high

street consumer nervousness for some time, as sentiment

there tends to lag recovery in other spheres. Those

well-run companies with a particular niche or

differentiating angle to their investment proposition

should be able to buck the trend.

Which sectors do you think might buck the current

trend?

DB

The natural resources sector is a must, but then, of

course, I have to say that. Also, possibly property and

those companies stuffed with assets. If one looks hard

enough, there are a few of these to be found on Aim. Again,

without being sector-specific, most well-managed companies

should do well in the next upturn.

FL

As I mentioned earlier, I believe, with certain

exceptions, that mainly the mining, oil and gas companies

and companies servicing them will buck the trend. There is

still an unprecedented demand for these commodities from

the likes of China and India.

AB

Clearly, natural resources and some commodities have

struck a chord with investors in recent times. There's

also an associated interest in clean, renewable energy

sources using proven technologies. The fast-growing

emerging market economies continue to attract investor

interest, but on a much more selective basis.

Infrastructure projects in India are a recent example of

where there's clear potential for good returns.

TE

The oil, gas and mining sectors have clearly bucked the

trend and been popular. With the current price of oil at

record highs, the alternative energy sector should benefit.

I also believe that the waste management sector will grow

in importance on the back of recent increases in landfill

taxes and the growing success of environmental lobby

groups.

Where will Aim be this time next year?

DB

Once the feel good factor returns, corporate advisers

will have companies knocking on their doors again and the

bad times will be forgotten very quickly. I'm an Aim

veteran, having had a hand in the flotation of two of the

first ten companies on Aim. The press was scathing and many

observers suggested that Aim wouldn't survive. But 13

years on, I'm not sure of the exact numbers, but we

have about the same number of companies on Aim as on the

Full List ? what a success story. I do believe,

however, that institutions are probably more selective than

in the past. What must be remembered is that Aim was

designed to provide a simple vehicle to enable management

of smaller companies to raise capital. I believe that this

has worked. Not all companies make it ? as we all

know to our cost. On balance I think the evolution of Aim

has been excellent and that the London Stock Exchange (LSE)

deserves recognition for providing the Aim platform. Well

done in my opinion.

FL

This is not an easy...