SMALL CAP MOVERS: Secondary choices drag on valuations

Much of the progress made earlier in the year was undone this week as the junior market slid more than 2.6 per cent, with small-cap investors seemingly gripped by a collective bout of stage fright.

Pinpointing the precise trigger for the sudden risk-off mood is not straightforward. It has been a turbulent week for US technology stocks, but drawing a clean line from Wall Street to the UK market is far from convincing.

Stretch it further, and it becomes harder still to argue that this is the root cause of the jitters afflicting the rag-bag of roughly 600 miners, oilers, technology and healthcare companies that populate AIM.

Indeed, UK blue-chips proved resilient in the face of the Silicon Valley turmoil, sparked by what looked like drunken-sailor spending on artificial intelligence by Amazon, Meta, Google and Nvidia, which dragged the Nasdaq down 4 per cent.

The FTSE 100, by contrast, edged 0.3 per cent higher over the week. The AIM All-Share went the other way, falling 2.6 per cent to 797.46, back below the 800 mark.

The Aim market has dragged this week while the FTSE 100 has proved more resilient

The answer to the conundrum may lie in a trend that has been gathering pace since the turn of the year, one that is a short-term negative for prices but could prove a longer-term positive for companies and investors alike.

More than 20 AIM-listed businesses have tapped the market to refresh their coffers in recent months, and a similar number are understood to be lining up to do the same. Mechanically, that means more equity coming to market, which dilutes prices, while the issuance of discounted stock acts as a temporary drag on valuations.

The flip side is that much of the new capital appears to be earmarked for projects rather than simply keeping the lights on. As that money is deployed, valuations should begin to recover, or at least that is the theory.

The week’s biggest faller was something of a puzzle. Sancus Lending Group slid 38 per cent, a move that looks hard to justify on the face of the recent news flow. Just last week, the bridging finance specialist delivered a largely reassuring trading update, following earlier positive funding news.

A glance at the one-month chart, however, tells a more nuanced story. The shares more than tripled around the time of the trading statement, suggesting the past five days may simply represent a sharp reality check after an initial burst of euphoria.

In other cases, the selling pressure was easier to explain. Trellus Health fell 32 per cent after a trading update revealed its cash runway extends only to the end of the current quarter, leaving little time to secure additional funding.

Plans to raise money and pivot towards a Western Australian copper-gold project unsettled investors in energy transition group EQTEC, whose shares dropped 25 per cent. Long-running litigation issues in India continued to weigh on Mercantile Ports and Logistics, down 32 per cent over the week.

Among the risers, the ever-volatile Zoo Digital topped the table with a 77 per cent jump following an upbeat trading statement and a boardroom reshuffle.

Investors who backed GCM Resources in its last funding round at 6p were also well rewarded, with the shares up 60 per cent over the week to 10.5p. The £1 million raised will be used to advance the Phulbari Coal and Power Project in north-west Bangladesh. Warrants issued at the same price mean further funds will flow as they are exercised.

Finally, Hercules gained 9 per cent after its power and energy arm, Advantage NRG, secured £6.5 million of contracted work across two regional electricity networks. The contracts, which run from January to December 2026, sit within existing frameworks with Electricity North West and Scottish and Southern Electricity Networks.

At peak delivery, the work will require up to 52 skilled operatives, lifting Advantage NRG’s operational scale and technical output. The business supplies linemen for the construction and maintenance of overhead transmission lines.

Brusk Korkmaz, chief executive of Hercules, said the early award reflected “increasing demand for flexible, high-quality delivery of specialist labour”, adding that power and energy remains a key growth pillar as network operators step up investment to expand grid capacity and resilience. National Grid proposals suggest £58 billion of UK-wide power network investment will be required.

Read more at www.newsdefused.com