1. The number of companies quoted on AIM could double in the next four years . . .
The last time the number of companies listed on AIM was this low was back in 2001. That might not sound positive, but the number of companies quoted on AIM more than doubled over the next four years, reaching 1,399 by 2005. Small company Initial Public Offerings (IPOs) are all about market sentiment, and market sentiment can turn very quickly. The relative ease of listing on AIM means smaller and medium sized companies tend to view it favourably during the boom times.
2. End of US exceptionalism . . .
One of the reasons AIM, and the UK more generally, has struggled is that valuations for UK listed companies are so much lower than in the US. Companies can shift their main listing to the US and get an instant valuation boost. Alternatively, US companies and private equity buyers can come over to the UK and snap up UK companies on the cheap. That could be changing, recent months have seen the value of US companies fall slightly versus the rest of the world – suddenly the UK isn’t a bargain basement anymore. Companies staying around longer means more opportunity for UK investors to benefit from their growth.
3. IHT benefits . . . for now!
AIM’s IHT benefits have been a major source of discussion, and yes they’ve been halved in the last 12 months. Nonetheless, as things stand, AIM shares remain the only way to reduce the inheritance tax due on your ISA – often someone’s largest asset outside their home and pensions and potentially a source of a lot of death duties.
4. Valuations suggest returns of 41.4% in the next five years
AIM’s recent struggles mean the AIM All Share currently trades on a Price/Sales ratio of 1.09x, 23.3% below the average since 2012 (the earliest data is available for). Historically a P/S ratio at this level has been associated with returns of 41.4% over the next five years.
5. AIM today, gone tomorrow
It’s easy to look at AIM as a failed experiment. The reality is very different. AIM has nurtured a whole host of British success stories for example FeverTree and Abcam, yes some have subsequently been acquired by international buyers or shifted their listing overseas – but there are many that have simply grown up and joined the Main Market. Domino’s Pizza Group, Unite Students and Entain are all companies that started their life as listed companies on AIM.
For most businesses AIM is the start of a journey rather than the end, departures are not only to be expected but positively welcomed. It’s a sign that the growth market is doing its job. If AIM listed Rosebank Industries’ £1.1 billion fundraise earlier this month is anything to go by, the evidence is that AIM’s not broken yet.
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