The future of London’s AIM market is ‘delicately balanced’ with ‘many’ firms considering delisting, the chief executive of energy supply challenger Yu Group has warned.
Bobby Kalar told shareholders on Tuesday he was disappointed by a lack of engagement from large institutional investors and frustrated by a ‘lack of recognition’ of the company’s financial performance.
It follows a sustained period of weak AIM returns, a surge in delistings and a slump in new entrants, hurting the market’s credibility as an efficient facilitator of growth for small companies.
Kalar said: ‘Many AIM companies are questioning the market’s future and the desirability of remaining listed.’
Exodus: Chief executives have voted with their feet and leave LSEG’s AIM market
London’s attractiveness as a destination to publicly list a business has come under pressure in recent years, with its detractors highlighting evidence of undervaluation, poor performance and weak liquidity among concerns.
The impact has been that London being snubbed by major firms looking to go public, companies being snapped up by private equity and groups switching their listing to rival markets or delisting entirely.
Industry and Government have collaborated on efforts to boost the attractiveness of London’s capital markets, though reform has generally focused on the FTSE 100 and FTSE 250 indices.
London Stock Exchange Group say AIM is ‘the world’s most successful and established market for dynamic high-growth companies’, which benefit from access to ‘a diverse set of investors and a supportive advisory community, who understand the needs of entrepreneurial businesses’.
But a lack of liquidity on the market has contributed to lacklustre share price growth for many AIM-listed companies, as well as outsized price swings in response to company updates.
The FTSE AIM 100 – which encompasses the AIM market’s 100 biggest firms – is up just 3 per cent over the last year and is roughly 30 per cent below its pre-Covid level. A similar pattern is seen in the AIM All-Share index.
New initial public listings on the AIM are yet to recover from their pre-Covid levels after an initial post-lockdown spike in 2021.
EY data shows four companies listed on AIM in the first of 2024 after nine companies listed last year. By contrast, 16 new companies entered the market in a single quarter three times from 2017 to 2018.
Separate data from accountancy group UHY Hacker Young shows fewer IPOs and more delistings have driven the number of companies on the index to its lowest level in more than 20 years.
Drop-off: IPOs and cash raised on AIM has fallen sharply over the last couple of years
Yu Group’s Kalar said the decline reflects companies’ dissatisfaction with the market.
The group, which is a specialist supplier of energy and utility solutions to UK businesses, saw revenues surge 60 per cent year-on-year to £312.7million in the first six months of 2024.
Adjusted earnings before nasties soared 49 per cent to £20.4million, driven by demand for its smart metering solutions.
It is one of the fastest growing suppliers in the business-to-business space, with market share increasing to 1.8 per cent from 1.4 per cent at the beginning of the year.
Kalar said: ‘The lack of institutional engagement has been disappointing, despite management delivering colossal value year on year.
‘Many AIM companies are questioning the market’s future and the desirability of remaining listed. This has been reflected in the reduction of quoted companies.
Bobby Kalar owns 51.6% of Yu Group shares
‘The AIM market’s future is delicately balanced and won’t be helped if the current government further punishes and disincentivises entrepreneurial high growth companies.’
Kalar holds major stake in Yu Group
Yu Group shares have added an eye-watering 1,667 per cent over the last five years to 1,590.5p. Shares are up more than 30 per cent since the start of the year, but management thinks the firm remains undervalued.
Chief executive Kalar is also the company’s largest shareholder by far, with a 51.6 per cent stake according to the companies website.
Yu Group’s second and third largest shareholders, Jamieson Principal Pension Fund and Premier Miton, own 6.6 and 6.3 per cent respectively.
Analysts at SP Angel maintain a buy rating on Yu Group shares with a target price of 2,100p – roughly 32 per cent ahead of their current level.
The analysts wrote in July: ‘We continue to see scope for Yu Group to grow its revenue base to in excess of £1.4billion within a couple of years.
‘With the stock trading on a FY24E P/E rating of <10x, a 33 per cent discount to the market, we continue to rate the stock as buy.’
Bringing up the rear: The AIM market’s performance has lagged the UK’s major indices
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