Growth of UK smaller companies sees AIM open for business
Reading media headlines can often lead to a simplistic world view, one that applies to large companies, to currency markets and to global stock markets. It is not a view, though, that applies to individual smaller companies, which by their nature and size are often more exposed to the UK economy.
But then perhaps you share the view of the headline writers that all is doom and gloom, and agree with Luke Johnson, who recently wrote in the Financial Times (paywall) that muddling through is a strategy. Well may I share a secret or two with you, please?
First has to be the question of the doom and gloom. Is it justified? Is that an absurd question? Good news may not sell newspapers but that is no reason to assume that none exists. While depression is getting a good press at present, the story is only reported, it seems to me, from a particular perspective.
For example in the last week or two we have seen two companies, held by the Octopus AIM Venture Capital Trust (VCT) and Second AIM VCT, have their profits expectations raised by analysts, as a result of reporting good figures. Those companies were GB Group, whose online database verification systems are gaining increasing international attraction from well known global brand names, and Idox, whose software is used by UK local authorities and international engineering companies. Two quite different companies in disparate industrial sectors that are both clearly trading well.
Of course it is possible to dismiss analysts’ estimates as being bullish, but in both cases the cause of expectations being revised upwards was the audited results reported by the two companies. That is fact, combined with the market’s expectation that these two companies are likely to continue to experience strong demand for their products.
And here’s my point. Smaller companies are managing to grow even in this economic environment. They cannot be dismissed as a single homogenous market. Companies listed on AIM are really best described as companies on AIM. They are all individual smaller companies, with their own characteristics and virtues. The challenge is to find the good ones.
Another holding in both Octopus AIM VCTs is MyCelx, whose system for purifying contaminated water is seeing substantial growth, primarily amongst the company’s oil industry customers. Recently MyCelxannounced an extension to its first rental contract worth $2.5 million. The company’s flotation provided funds for investment into rental machinery and it is clear that already the demand for this sales approach is growing.
Secondly, I’ll share with you a very well kept secret about AIM. It’s open for business.
Anyone would be forgiven for thinking that the market is shut and that in prevailing circumstances no company can ever expect to raise new capital. But this is not the case. The companies raising capital on AIM at present are not as famous as Facebook, but there are better companies and to prove the point of an open market, they come from a range of sectors.
Take Snoozebox for example, a holding in the Octopus Micro Cap Growth Fund. Snoozebox builds temporary hotels at major events, from Glastonbury to Silverstone, based on a container unit, which are all connected and plumbed together. Erected simply and quickly and then moved on to the next location, this novel idea was seeking £12 million and encountered demand for around twice as many shares as were available.
Another good example is WANDisco, which the Octopus AIM VCTs invested in. The company recently raised £15 million but is believed to have been able to have raised at least double that figure, but didn’t need that much capital. WANDisco has created software that allows multiple instances of the same computer application to operate on independent hardware without sharing any resources. The software is used by companies worldwide and enables staff in different locations to collaborate on projects in real time. Now suitably financed, the company will increase its sales force and looks set to achieve substantial growth over the next few years.
These are just a handful of examples of a wide range of companies with compelling growth stories that are raising new capital to support future growth. All of these companies now have share prices above the price at which they raised funds.
The abiding theme therefore is one of prevailing growth for smaller companies. There are investors out there that are still prepared to support well managed growth companies. It may not be fashionable. It may be too good to report. It may too be only true for smaller companies. But none of this discredits the truth that there is still a growth story to be found on AIM.
That’s good news for employment and the broader UK economy. It’s also good news for investors accessing these companies who will benefit from the resilient growth potential of some smaller companies over the next few years.