AIM’s 20th anniversary is a double edged sword for the junior market because it provides an opportunity for additional press coverage. But many hacks will regurgitate the old failures and scandals that everyone knows about. Like any market there have been good and bad companies, but one indication of the level of success is that 14 companies that started out on AIM are now constituents of the FTSE 250 index. These companies have a total market value of just over £21 billion.
Putting that figure into perspective, AIM was valued at £75.3 billion at the end of May 2015 compared with just £18.4 billion at the end of 2003. By then, three of the FTSE 250 constituents had already left AIM and are now valued at £4.8 billion. Seven of the companies were still on AIM at the end of 2003 and are now worth nearly £8 billion, while the other four floated after 2003.
There are 21 companies currently on AIM that are valued at more than £500 million and their total market capitalisation is £19.5 billion. Seven or eight of these companies are large enough to get into the FTSE 250.
AIM’s big winners
The 14 companies in the mid-cap index which were previously on AIM are: Big Yellow (BYG), Booker Group (BOK),Domino’s Pizza (DOM), Genus (GNS), Hansteen (HSTN), Hiscox (HSX), IP Group (IPO),Lancashire Holdings (LRE), Melrose Industries (MRO), Petra Diamonds (PDL), Playtech (PTEC),Redefine International (RDI) (was Wichford), Synergy Healthcare (SYR) and Unite (UTG). Animal breeding services provider Genus is unique because it was originally on Ofex, now ISDX, prior to AIM.
AIM’s contribution to FTSE 250 index
(click to enlarge)
The total value of these companies when they joined AIM was £1.7 billion and they were valued at around £6 billion – it is difficult to find an exact figure for Hiscox – when they made the move.
These companies are in the FTSE 250 because of their current performance, but there is no guarantee that they will continue to succeed, even though they all appear to have solid businesses. There have been other AIM companies that have been in the FTSE 250 and fallen back out – stand up oil and gas company Afren.
Of course, many of the companies have fuelled part of their growth by issuing additional shares, so the rise in market values is not all share price growth.
(click to enlarge)
All of the companies, except for Petra Diamonds and IP Group, pay dividends and yields range from just under 1% for Synergy Health to more than 6% for property investor Redefine International.
The current valuations of the companies are after dividends and other cash distributions. For example, Melrose Industries has made a number of disposals and in recent years returned £800 million to shareholders. That is nearly one-third of the current market capitalisation. Melrose started out as a relatively small shell, but its careful acquisition strategy in the industrial and engineering sectors has ensured that it has prospered.
In the past three years, insurer Hiscox has made special dividend distributions totalling £422 million and that is on top of its normal dividend which was 22.5p a share last year, costing £72 million.
Pizza firm takes some topping
Domino’s Pizza, which is the UK and Ireland master franchise holder of the pizza brand, has made tender offers to shareholders and paid a total of 98p a share in dividends. Although the original flotation price was 50p, the true adjusted flotation price is 15.625p, which is less than the 17.5p paid in dividends for 2014. Domino’s Pizza is one of the most successful AIM companies of all time when it comes to share price performance. Ignoring the contribution from dividends, the current share price is nearly 50 times the flotation price.
This provides an indication of the cash generative abilities of Domino’s Pizza now that it has grown to a significant size. The company has also acquired the master franchises in Germany, Switzerland and Luxembourg. There were 894 stores in operation at the end of 2014, up from 190 when it joined AIM and 501 by the time that the company moved to the Main Market.
(click to enlarge)
Since 1999, underlying pre-tax profit has increased from £1.8 million to £54.8 million – and it would be higher without having to absorb an operating loss of £8.36 million from Germany and Switzerland.
Domino’s Pizza’s performance contrasts with AIM-quoted DP Poland, which is still cash hungry and needing to raise money because of the immature nature of the Polish franchise operation. It will take time for DP Poland to be a significant cash generator.
Aim for FTSE 100
Grocery distributor Booker is the largest of the companies and it has grown substantially, but is one of the less well performing in share price terms – although it depends over what period you measure it. Booker reversed into another grocery distribution business called Blueheath so it is an example of how a disappointing business can be transformed and become a company with realistic potential to be a FTSE 100 index constituent.
Blueheath was established in 2000 and was loss-making when it floated four years later. It raised cash to expand on the back of its IT system, but two years later a strategic review identified that costs were too high, there were large unprofitable customers and operating inefficiencies. Blueheath remained loss-making and needed additional funds to give it time to secure its future through the acquisition of Booker, which gave the business scale. When Booker reversed into Blueheath the new shares issued were 90% of the total share capital and the company was valued at £450.2 million.
(click to enlarge)
Booker had previously been quoted, but in 2000 it was acquired by frozen food retailer Iceland. The enlarged business was taken private and broken up. Charles Wilson become chief executive in 2005 and took on the same role at the combined group. The share price has moved above the original Blueheath float price of 121p a share, but it took some time. The current share price is around four times the level when the reversal took place.
More acquisitions have been made since the reversal and the latest is the purchase of Budgens and Londis. If Booker continues to grow it could be knocking on the door of the FTSE 100. It will not be the first former AIM company to do this, though.
The one that made it
IT security products supplier Zergo Holdings moved to the Main Market in 1998, and after an acquisition became Baltimore Technologies. On the back of the technology boom Baltimore at one point was valued at £7 billion and reached the FTSE 100 index for a short period in 2000 – it is the only former AIM company to have achieved this. In August 2006, after Baltimore had moved back to AIM, Oryx acquired the company via a share swap equivalent to Baltimore’s net asset value (NAV), although some minority shareholders remained. The estimated value at the time of the bid was £28.4 million!
More than 160 companies have moved from AIM to the Main Market and around one-quarter have subsequently moved back. Not all of them have moved to a premium listing, and if they have a standard listing they are not able to be included in any FTSE index. Car auctions business BCA Marketplace reversed into AIM shell Haversham (HAV) earlier this year, but, despite being valued at more than £1 billion, it is not in the FTSE 250 because it became standard listed. There are plans to move to a premium listing.
Online payments processor Optimal Payments (OPAY) is on course to be the next company to make the move to the Main Market and it will be eligible for the FTSE 250. Optimal Payments is acquiring London-based rival Skrill and this deal is awaiting FCA approval. This has delayed the move to the Main Market.
All of these companies have needed AIM to help them accelerate growth, and some did not have enough of a track record to go straight to the Main Market. Otherwise, they were just too small at the time. Not now.
*Pharma company Vectura has just made it 15 companies after replacing Spirit Pub Company in the FTSE 250. It moved from AIM to the Main Market in 2007 after buying fully listed Innovata for £131 million.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
[“source – iii.co.uk”]