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A lternative I nvestment M arket: The first ten years. Marc Cowling Institute for Employment Studies. Background. Established by London Stock Exchange in June 1995 as a regulated market of a Recognised Investment Exchange It replaced the Unlisted Securities Market (USM) - PowerPoint PPT Presentation
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Alternative Investment Market:The first ten years
Marc CowlingInstitute for Employment Studies
Background
Established by London Stock Exchangein June 1995 as a regulated market of a Recognised Investment Exchange
It replaced the Unlisted Securities Market (USM)
Provides a less costly route which could be used by smaller companies to raise capital both on their introduction to the market & thereafter
The market provides an opportunity for companies to raise capital for expansion, a trading facility & a way of establishing a market value for their shares
AIM companies tend to trade on wider spreads than companies on the main market, & liquidity can be a problem
One of the advantages of investing in AIM companies is that for tax purposes they are treated as ‘unquoted investments’.
Significance is that for every year that you hold AIM shares, you get 5% taper relief' on any gains you subsequently make.
eg a higher rate taxpayer who would normally pay 40% CGT, & holds shares for one year then sells them, only pays 35% CGT. If held shares for four years or more, the tax rate falls to 10%.
By the end of 2004 almost 1,000 companies were on AIM & its market capitalisation has risen to about £24,000,000,000
The market has proved particularly popular with mining & resource companies in recent years
By some calculations, AIM has accounted for almost two-thirds of total IPO’s in Western Europe during the past year
AIM Listing Requirements For a company to be admitted to the AIM market
it needs to produce an Admission Document which should include all information which an investor would reasonably require & expect to find,to make an informed assessment of the assets & liabilities, financial position, profits & losses & prospects of the company, together with the rights attaching to the shares to be issued
Under the AIM rules all companies admitted to AIM must have a nominated adviser (“NOMAD”) whose responsibility is to work closely with the company & advise it on its obligations as a company whose shares are traded on the AIM market.
Market Value Distribution
Money Raised
The Data
All companies listed on AIM over the period 1995 to 2005 (n=1,225)
Company accounts data (turnover, employment, shareholder funds, gross profits, operating profits, dividends, assets, investment, liquidity ratios & profitability ratios)
Typical time-series is 5-6 years data (& 1,225 companies in cross-section)
Sample Statistics (1994 prices)Sales Turnover £19.1m Gross Profits £5.0m Operating Profits (-£0.16m) Investment £2.6m Profit Margins (-3.78) Gearing Ratio 105.19Employees 284Age of Company 11.4 years
Variability Over Time
Turnover – greater between companies
Gross Profits – greater between companies
Operating Profits – greater between companies
Investment – greater within companies
Profit Margins – greater between companies
Gearing – greater between companies
Employment – greater between companies
Turnover Dynamics Real £m
0
5
10
15
20
25
30
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05
Gross Profit Dynamics Real £m
012345678910
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05
Investment Dynamics Real £m
0
1
2
3
4
5
6
7
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05
Gearing Dynamics
0
20
40
60
80
100
120
140
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05
Profit Margin Dynamics
-10
-5
0
5
10
15
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05
Employment Dynamics
050100150200250300350400450500
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05
Panel Data Estimation
Estimate pooled, RE and FE models
Static and Dynamic
Gross Profits and Sales Turnover
Typical model has 6 years in time-series and 900 cross-sectional observations
Generally covers 2000-2005
Sales pc and Firm Age0
.2.4
.6
rsalesage
0 50 100 150age
Gross Profit pc and Firm Age
-.05
0.05
.1.15
RGPage
0 50 100 150age
Productivity and Capital0
.51
1.5
rsalesKL
0 5000 10000 15000KL
Summary
AIM set up 12 years ago to provide equity to smaller firms
Only 10% of current issues for new companies
Typical company is 11 years old with sales of £20-25m in current prices
Market (firms) generally grown although profitability still an issue
Still time to grow & improve performance for most listed firms