Capital Quarter Summer 2019: Market Analysis: Buoyancy versus unpredictability
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Service: Audit & assurance
AIMThe first six months of 2019 have seen an increase in AIM market capital to £100.2million following a tough end to 2018. There were 15 new issuers during the period, with the financial, oil & gas and technology sectors continuing to dominate activity.
During the first three months of 2019, the AIM market saw only one IPO. This represents the lowest IPO activity for 10 years (since Q1 2009) and the lowest volume since Q1 2013.
Whilst IPO activity is at an all-time low, it appears investors are still comfortable taking part in AIM companies’ secondary fundraises. This suggests they are adopting a more cautious approach to businesses that are yet to float. Looking at the first six months of 2018, 24% of funds raised related to new issues. That compares to 6.4% in 2019, demonstrating investors’ reluctance to invest in new issues.
The recent reforms, which oblige AIM companies to comply with a recognised corporate governance code, should continue to enhance the reputation of entities listed on this market. The tighter regulatory environment is likely to further increase investor confidence. Likewise, high profile companies such as ASOS and Fevertree are attracting investors to look at the market for other potential opportunities.
Over the next 12 months Brexit continues to pose economic uncertainty and is likely to still have an impact on the volume of IPOs taking place across all markets. However, the first six months of the year has seen the AIM market strengthen through further issues of funds. What’s more, given AIM’s dominance and history of raising funds even during challenging times, its success is expected to continue.
Main MarketDuring the first six months of 2019, £11.4billion was raised on the Main Market. This was an increase of 39% compared to the same period last year. There were 28 new issuers, raising a total of £2.6billion, compared to new issuers in the first six months of 2018 raising £1.5billion.
There continues to be a decrease in company size on the Main Market. This has been a trend over the past two years, with smaller companies electing to list on the Main Market rather than AIM.
One reason may be a knock-on effect of the corporate governance reforms for AIM companies implemented in September 2018. That’s because companies may assume fewer compliance issues and associated fees when listing on the Main Market.
Stability versus uncertaintyLooking at both the AIM and Main Market’s position and results for the first part of 2019, it’s clear they are showing signs of emerging from a difficult period in the latter part of 2018.
However, the future of both markets during the remainder of 2019 is likely to depend on the wider political environment. With the uncertainty surrounding Brexit and the potential impact on the economy and the value of sterling, it can certainly be described as unpredictable.
What’s more, ever increasing political tensions outside Europe could lead to unforeseen changes in the attractiveness of the UK market for investment. Whilst the future may be hard to call, the first six months of 2019 certainly show the stability we would expect from these markets.