Small cap listed companies are at risk of losing out due to their lack of innovation in the field of new product development and a perceived low level of interest from institutional investors – these are among the key findings of the AIM Survey 2004, published by accountants and business advisors PKF.
PKF interviewed 182 chairmen and chief executives and found that while there is an overall increase in satisfaction levels with AIM – the highest ever at 90% – the findings suggest that it is time for AIM to be further differentiated from other markets with distinct, more relevant rules as it enters its tenth year.
A perceived lack of institutional investors was named the main disadvantage to the AIM market. The number of respondents concerned about this problem is almost triple that of last year.
As a consequence, AIM companies want a re-assessment of the risk profile of AIM shares compared with other forms of stock market investment. PKF believes there is a strong case for the London Stock Exchange to commission research into this area. If it transpires that the risk factor of AIM companies does not significantly differ from small cap shares on the official list, there would be significantly more pressure to revise the investment apportionment rules of institutional investors – this help could transform AIM into a major market worldwide.
Geographic expansion is seen as a main area of growth for the market favoured by 37% of companies. The top target areas are western Europe (27%) and north America (23%), followed by the Far East, Asia and Australasia (a combined 17%) and Eastern Europe (11%). Specialisation was also rated highly, with 32% identifying it as a major growth area. But many AIM companies are failing to focus on new product development – only 1% of companies see it as a significant opportunity for growth, down from 3% last year and 5% in 2002.
And 38% of companies think unaudited profit forecasts should be allowed. This means directors and senior management, who are in the best position to comment on a company’s performance, would be more likely to provide accurate information on future prospects than the brokers’ ‘guesstimates’. Those in favour said it would help the market to be better informed and assist with liquidity. The 45% against such forecasts said the main problem was a risk of inaccuracy.
The number of AIM companies intending to transfer to the Official List has diminished significantly from a third in 2002 to a quarter in 2003 and to just over one in ten in 2004, confirming AIM as the market of choice for the vast majority of the companies surveyed.
Clive Brook, partner at PKF, said: “AIM will be a decade old next year and the findings of this survey suggest it is entering a new era – this is the perfect time to reassess the regulations and purpose of the market in order to address the concerns aired in this report.”
These are challenging times for AIM. Management structure, risk assessment rules, investment opportunities and ownership are some of the areas currently under the spotlight. Improvements in these areas may spark a route to liquidity for VC fund managers looking for exit opportunities.