Which AIM IPO would you back?

Initial public offerings (IPOs) on AIM have continued to pick up, with three new companies listing on Wednesday, including the largest trading company IPO on AIM since 2008 from Tungsten Corporation.

Construction services company Tungsten was joined on the junior market by UK technology company Kromek and China Rerun Chemical Group, which produces lubricant products.

Tungsten, which intends to produce a low-cost invoice discounting service through the acquisition of e-invoicing platform OB10 and a bank, raised £160 million by placing 71.1 million ordinary shares at a price of 225p each and had a market capitalisation of £225 million upon admission.

The offering was "significantly oversubscribed", with "strong demand from institutional investors", and the shares rose around 1.4% on the morning of admission.

"We are delighted to have attracted institutional investors of this calibre, with the placing being significantly oversubscribed," commented chief executive Edmund Truell.

"We look forward to delivering attractive returns to new and existing shareholders as the business scales."

AIM has seen an increasing number of IPOs in recent months, with data published by accountancy group UHY Hacker Young on 8 October showing the market was growing for the first time in six years.

But the offerings often focus on institutional investors, as Truell's statement shows, meaning retail investors cannot purchase shares before they hit the market. In the case of the Kromek IPO, Interactive Investor was the only broker to offer shares to retail clients.

Kromek, which develops and produces x-ray imaging and radiation detection products, raised £15 million through the IPO and had an initial market capitalisation of £40 million. The shares were up 3.57% at lunchtime on Wednesday.

The third company to list on AIM on Wednesday, China Rerun, raised £180,000 through a subscription of 1.81 million new ordinary shares at 10p each and had an initial market capitalisation of around £25.58 million. The shares rose by 30% on Thursday morning.

Analyst view

"Shares in Tungsten play to a favoured theme within our smaller companies universe; namely, the disintermediation of banks via the use of technology," commented Killik & Co brokers Mike Savage, Peter Bate and Stephen Timoney.

"Clearly, the model is as yet unproven, albeit the fact the group has such a large 'captive' client base at its disposal gives us significant comfort over the long-term potential."

The brokers also saw potential in Kromek, despite its small size.

"We view Kromek as a small, interesting technology play with strong intellectual property, exposed to large end markets exhibiting secular growth," they said.

"Initial interest in the group's products from large original equipment manufacturers (OEMs) gives us some validation of the quality of the group's technology, and we would hope the high performance qualities of said technology will attract other, large OEMs keen to benefit from the differentiating attributes Kromek's technology enables."