After a strong start to 2017, stock market valuations have drifted during the traditionally quiet summer months. One of the strongest index performances so far this year has been the Alternative Investment Market. AIM is home to literally hundreds of growth companies, but it presents a constant challenge to investors looking for high quality shares.
There are 963 companies on the AIM All-Share index, which has risen by around 27 percent over the past 12 months. The market has helped deliver some big success stories in recent years, including the likes of Boohoo.Com and Fevertree Drinks. But it’s also the source of plenty of disappointments, with Fairpoint and Naibu being recent examples.
The first line of defence against these sorts of disappointments is AIM’s use of Nominated Advisers. The Nomad system is part of a ‘light touch’ regulatory regime that was designed to make it easier for smaller companies to maintain a public listing. Nomads tend to be corporate brokers and investment banks, and it’s their job to advise companies on their responsibilities to the market.
One of the quirks of the system is that these Nomads can resign from their positions. Often the reasons are genuine and companies can quickly find a replacement. But under AIM rules, failure to find a replacement in time will result in them being booted off the market.
With this in mind, it’s notable that recent research shows that the number of companies leaving AIM because of the resignation of their Nomads has risen sharply during the past five years.
Accountancy group UHY found that 14 out of 82 companies that left AIM in the last year did so because their Nomad resigned. That compares to only three out of 101 companies that delisted in 2011/12.
A cancelled market listing that’s forced by a Nomad resignation can be hugely frustrating for investors. It leaves few options but to go along with the company’s terms, and it’s damaging to the reputation of the market as a whole.
According to UHY, the financial risks of failing to make sure client companies are compliant, together with limited fees available, has reduced the number of firms prepared to take on the role of Nomad.
Apparently this is being felt hardest among smaller and more complex companies, as well as those based in emerging economies (AIM has 161 international companies).
For investors, this ‘crunch’…
