The AIM of Research
Ciaran Garvey, Investment Manager at Thorntons Investments, explains why investment research is vital.
Investment research is vital for two reasons. From an investor’s perspective, it’s about finding the ‘winners’: companies that will provide strong business and investment returns in the years ahead. For companies, research is the conduit that attracts new capital to fund business growth and ensure the value of the business is accurately reflected in its share price.
Recent examples of this can be seen from some of our own portfolio holdings. International intellectual property support service provider RWS, successfully raised £40m in February 2017 to part-fund the acquisition of a US company. In addition, CVS Group, a leading veterinary service provider, raised £30.2m in December 2016 to help fund acquisitions in the UK and the Netherlands.
The AIM (Alternative Investment Market) market was launched in 1995 and now has 973 company listings with a total market capitalisation of £87 billion. Although there are some larger companies on AIM, such as ASOS and Fever-Tree, the average company market cap is £89 million*.
The average FTSE 100 stock has over 20 analysts researching it. The average AIM stock has fewer than three analysts, at least one of which will be its own broker. This disparity is likely to widen further under proposed changes of MIFID II legislation. Company research will have to be paid for directly and it is likely that brokers will decide not to cover very small companies, because it will be uneconomic. The AIM market is openly concerned about the implications of this for companies listed on AIM.
This situation, however, does offer opportunities. Under researched companies offer greater prospects for finding winners and the AIM market has offered many successes. Small companies listed on the AIM market are keen to engage with investors and potential investors. Almost universally, our experience has been positive, with companies making senior managers available to meet and discuss their businesses and growth plans with us.
We have met, or had conference calls, with the majority of our AIM listed companies over the last few months as they report their 2016 results. The general message is a positive one, with plenty of growth opportunities being pursued both in the UK and overseas. One of the great rewards of investing in small companies is a real sense of sharing in success and being a key provider of capital for their growth.
Thorntons have been managing AIM portfolios for clients for over 10 years. If you would like to get in touch to discuss our AIM Inheritance Tax service please contact David Holmes on 01382 214 900 or by email to dholmes@thorntons-investments.co.uk
*AIM market statistics provided by Allenby Capital in the AIM market update of January & February 2017