Photo: Dimitry B via Flickr
Investors that managed to pick up shares in Northwest Investment Group (LON:NWIG) just after its admission to the Alternative Investment Market in June last year can lay claim to backing the best performing initial public offering of 2010.Putting aside wide spreads on trading, tightly held shares and no deals yet from the Chinese-focused investment group, a 480% share gain was nevertheless a very impressive result.
After a very quiet period in 2008/09, there were officially 43 new company admissions to AIM in 2010 – excluding re-admissions and those switching from the Main Market.
Unofficially, the number looks closer to 45 following a pre-Christmas surge of activity. Of those companies that got their IPOs away (and there were many that failed), 31 managed to close the year with a share price that that beat their original issue price.
Five were unmoved and nine had fallen below their first day trading level.
The worst performer was gold exploration group Scotgold Resources (LON:SGZ), which floated in February and finished the year down 30% at 3.5p after authorities blocked its plans to open a mine in the Grampian Highlands of Scotland (although it has recovered somewhat since).
Overall, the amount of money raised in IPOs on AIM scraped £1.0bn in 2010 – up from £0.6bn the year before and £0.9bn in 2008 but still way off the £6.2bn raised in 2007 and £9.6bn raised in 2006. In total, IPO fundraising on all markets of the London Stock Exchange rose by more than 573% in 2010, with 89 companies from across the globe raising over £10bn.
Tracey Pierce, Director of Equity Primary Markets at London Stock Exchange Group (LON:LSE), said: “We have seen a rejuvenation in the IPO market during 2010. Whilst in 2009 our markets supported a significant amount of fundraising through further issues, 2010 injected some very positive signs of life into the new issues market, including a number of major wins for London. With high profile listings from India, Russia, Asia and the Middle East, plus many other countries, the London Stock Exchange remains the international market of choice for companies with truly global ambitions. We believe that these new floats are just the beginning of a growing, healthy, long term pipeline of issuers, looking to join our markets.”
Of course, comparing the share performances of AIM’s 2010 intake should carry something of a health warning. Those joining later in the year arguably had less time to make their presence felt but, on the other hand, they did get to ride a wave of confidence that set in just after the half year mark. The AIM All-Share index surged from 661 points on June 30 to close 2010 at 933, making material inroads back towards a five-year high of 1270, which it reached in May 2006.
Adrian Kirk, corporate finance director at XCAP Securities (LON:XCAP) , a new specialist broker in the growth cap space, believes that the performance of the market during the last 12 months bodes well for companies considering a quotation in the company year.
He said: “We believe the market for AIM IPOs will further improve during 2011 with more companies looking to come to market. 2010 saw an increase in activity with 43 IPOs compared to 13 in 2009 and over £6bn was raised across both initial and secondary transactions. Current commodity prices also resulted in a strong flow of natural resource focussed companies and indications are that this should continue. AIM had a strong year with the FTSE AIM All-Share index returning over 42%, compared to around 11% and 12% from the FTSE 100 and FTSE All-Share, respectively.”
Kirk noted that equity investors, both retail and institutional, were still looking to invest in new companies that are run by strong management teams and offer good growth prospects on appropriate valuations, regardless of sector.
He said: “Given the lack of bank debt available, admission to a public market still provides companies with a source of raising finance to develop their business and operations whilst also enjoying the benefits of a public quotation. The continued growth and expansion in small and mid cap companies should also help lead an economic recovery.”
Among the top 10 best IPO performers last year, the top two were both investment vehicles. Northumbrian Water Group Plc (LON:NWG) raised £3m at 25p per share on joining the market in the summer ahead of plans to buy a hydropower project in western China. The company went on to see its stock explode towards the end of November (for no obvious reason) and finish 2010 at 125p. By comparison, shares in Q Resources (LON:QRES) , at number two, took off immediately. Q, which is seeking out resource assets in Africa and South America, floated at 6p in April and saw its shares jump to 23p within days. They eventually rounded off the year at 21p – a 250% return.
Commodities and energy dominated the top 10 positions, with mining proving to be the top sector performer. Metminco (LON:MNC) , which has copper, gold, molybdenum and zinc interests in Chile and Peru, led the way. It was closely followed by Bellzone Mining (LON:BZM) , which runs iron ore and nickel-copper projects in the Republic of Guinea and Ncondezi Coal, which has coal assets in Mozambique. Alternative energy investor Wasabi Energy (LON:WAS) , which listed in December, delivered a 100% gain and fifth position while at number nine, New Zealand focused Kea Petroleum (LON:KEA) was the only oil and gas entrant in the top 10.
Despite the positive overall performance by newly-listed companies in 2010, the rate at which new groups have joined London’s junior market over the last two years has been troublesome for the London Stock Exchange. While the flow of money into secondary issues rebounded quickly after the Lehmans collapse, the injection of new blood has been frustratingly hard to come by. Instead, a damaging string of de-listings by companies scrambling to slash costs or simply going bust have dominated the headlines.
As some sort of relief, the number of departures from AIM in 2010 fell by 44% to 157 from 280 in 2009. Indeed, in December, the number of companies joining the market broadly balanced the number that upped and left. Looking ahead to 2011, analysts have taken heart from the more optimistic sentiment in the latter part of 2010 and believe 2011 will offer more scope for prospective IPO candidates to make the leap on to the market.
Aamer Nawid, an analyst at stock market research house Fat Prophets, believes the outlook for IPOs depends on where equity markets head from here. “If we see a continuation of the positive momentum prevalent in 2009 and 2010 – which I think will be the case – firms will be quick to take advantage of market conditions and we’ll see many IPOs,” he said.
“In addition, many firms delayed listing due to difficult and volatile market and economic conditions and 2011 will see flotation return to boardroom agendas. Areas in which I can see heightened activity include technology and emerging market related stocks. Also leveraged buy-outs conducted at the height of the market will be looking more towards equity markets given that the cost of debt has increased.”