Octopus’ Stevens: Singing the praises of AIM

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If AIM ever decides to get itself a theme tune, can I suggest the 60s classic ‘Don’t Let Me Be Misunderstood’? It must be the perfect anthem for a market that is going through a period of amazing buoyancy yet still seems to attract a bewildering amount of suspicion from investors and advisers.

And yet the AIM market is awash with individual success stories. Take the example of Vin Murria, chief executive of Advanced Computer Software, who spoke at a recent AIM seminar for advisers.

Ms Murria is one of the true stars of AIM, named Entrepreneur of the Year at last year’s AIM Awards. One can’t fail to be impressed by her tales from the AIM coal face – Advanced Computer Software has rocketed from a standing start to a market cap of £375m in less than five years, giving shareholders a fivefold return in the process. Four months ago it raised another £44m on AIM, with demand for twice as much.

And Advanced Computer Software is far from being the only AIM hit. Octopus has made 14 EIS investments on AIM since the start of the 2012/13 tax year, and on average they’re up by 42 per cent1 already. On top of that, we’ve now got the strongest pipeline of activity we’ve seen since before the credit crisis.

With so much good news floating around AIM, the mystery is why there’s still such scepticism about it. Statistics are partly to blame – the flat performance of the AIM Index2 over the year to 3 July looks pretty woeful against 11.9 per cent from the FTSE All-Share Index and 36.8 per cent2 from the FTSE SmallCap Index.

But concentrating on the performance of AIM as a whole misses the point completely. The thing is that AIM shouldn’t be treated as an index. It’s just a place where companies can go for capital, and investors who do their research carefully enough may be able to spot businesses destined for stellar success.

In recent months we’ve seen both a resurgence in the numbers of companies coming to AIM, and a marked increase in their quality. It seems to me that there are four main reasons for this:

  • Management teams are increasingly confident about the future – as the Small Business Index shows – and they’re looking for money to fund their growth ambitions
  • The banks, though not as reluctant to lend as they were a couple of years ago, can still make life hard for small businesses
  • In contrast, institutions have been actively looking for investment opportunities among small companies – many recent AIM fundraisings have been significantly oversubscribed
  • The government has been clear about its support for smaller companies – it has relaxed the rules on investments qualifying for VCT or EIS status, it’s announced the end of stamp duty on AIM shares and it recently announced that investors will be able to hold individual AIM stocks in an ISA

With tail winds like this and possibly a more benign economic environment ahead, we think the outlook is very bright for AIM and smaller company shares in general.

Paul Stevens is a small cap fund manager at Octopus Investments

Sources: 1Octopus Investments, 2Fidessa