When selling AIM winners works

Meat and delicatessen products retailer Crawshaw Group won the accolade as best performing share at this year's recent AIM Awards. But rather than being a passport to further riches, winning this particular gong bodes ill for its share price this year, certainly if the past is anything to go by.

Uniquely, among all of the AIM Awards, Best Performing Share is a factual award rather than one decided by the voting panel. However, despite taking into account the liquidity of the share, the companies that tend to win the award are relatively small and have been boosted by the short-term attentions of investors when liquidity is still probably pretty limited.

Too often these companies have performed strongly in the short-term, but have not sustained that performance. Many sat in sectors that were in favour at the time, such as mining. Even if the underlying businesses are growing, the share prices have tended to streak way ahead of fundamentals so it is not surprising that there is little scope for growth in the next few years. Others have just plainly failed to deliver on their perceived potential.

The AIM Awards website only goes back to 1999 (see table), so it does not have all of the award winners. However, there are 16 winners of the best performing share included on the site and they provide plenty of evidence of how the companies perform after they have won the award. The award is based on performance in the 12 months to the end of July in the year of the awards.

Just bouncing back

Of the nine winners that are still traded on AIM, seven previously had significantly higher share prices prior to the starting share prices for the period they won the award. This is also true of some of the winners no longer on AIM. In 2001, Henderson Morley floated at 4p a share, the price at which it ended July 2006, while Raft International floated in 2000 at 64p a share, nearly three times the winning price.

Even the ASOS share price had fallen by around three-quarters prior to the beginning of August 2003. That was partly down to the weak market at the time. The online fashion retailer, unlike many of the other winners, has grown its business significantly over subsequent years.

Some of the share prices had fallen even further so many of these share price rises are, at least in part, a recovery of past losses. Software Radio Technology is an example of a company which had trading problems and shut its mobile radio business, and this led to a decline in the share price of more than 90% in the two years prior to the winning period.

Of the currently traded companies, only Asia Energy/GCM Resources and Coal of Africa did not have significantly higher share prices in the period prior to the year they won the award and they are two of the worst subsequent performers.

Kiss of death

Measuring performance to the end of July the following year shows that out of 15 winners there have been eleven whose share price has fallen over that period. These share prices are taken from the AIM monthly statistics and adjusted for consolidations if required.

These fallers include 2001 winner MotionPoster, a business that was installing equipment on underground lines and in train tunnels that made it appear that a moving picture was in the window of the train. Its shares were suspended in July 2002 less than one year after winning the award. The business had reversed into an AIM shell called Westminster Scaffolding in March 2000 - not long before the award performance period started. The Bank of Scotland decided to cut the company's facility from £1 million to £600,000 and this left MotionPoster short of cash. The shares never returned from suspension and MotionPoster was dissolved in 2009.

The share prices of four of the other winners had more than halved in the year after winning the award. That includes 2000 winner Auxinet, which changed its name to Datacash, which subsequently surpassed its 2000 level.

The best performing of the shares in the following year was 2009 winner plant genetics developer FuturaGene, which was taken over in the subsequent 12 month period. In July 2010, Brazilian company Suzano Papel e Celulose bid 90p a share for FuturaGene, which was 89.5% above the end-July 2009 price.

Taken over or gone under

FuturaGene is one of three winners that have subsequently been taken over. The 2000 winner, payment services provider DataCash was taken over by Mastercard, which bid 360p a share in September 2010. That is a 60% increase on the share price at the end of July 2000.

In contrast, 2003 winner Raft International agreed a bid from financial software supplier Financial Objects at the beginning of 2006. Financial Objects bid the equivalent of 6p a share - 0.06 of a Financial Objects share plus 2.4p a share in cash and 1.2p a share in loan notes - a 74% decline on the July 2003 price.

Three other companies, in addition to MotionPoster, are no longer on AIM. Media and children's entertainment company Just Group, which won in 1999, used the strong share price to acquire training company Mediakey for £7.3m at the end of 2000. At the same time it raised £14m at 8.25p a share. Trading was disappointing and the Butt Ugly Martians cartoon series did not prove to be the money spinner that the company hoped that they would be. Just ran out of cash and went into administration in January 2012 and subsequently voluntary creditors’ liquidation in 2004. The company was dissolved in December 2012.

Biotechnology company Henderson Morley was always raising small amounts of money to keep itself going, but its luck ran out and it went into administration in September 2010 and was dissolved at the end of 2012.

Cassidy Brothers, which subsequently changed its name to Casdon, the brand used on its toys, is the only winner to leave AIM of its own accord. The 2002 winner left this September after saying that there was so little trading it was not worth being quoted.

Nine of the winners are still quoted on AIM and the share price of four of them has slumped by more than 90%. Three of those are mining companies and the other is pharma company Silence Therapeutics.

Other than a small rise for Software Radio Technology, the only significant riser of the nine companies left on the junior market was online fashion retailer ASOS. The fact that the ASOS share price is still more than 36 times the level it was in July 2004 when it won the award puts the recent share price slide in perspective. A portfolio of the winners would have been profitable, but only because of ASOS.

What next?

In reality, it does not matter what the share price was years ago when these companies won awards. They need to be judged on their current prospects.

The trick with maritime positioning technology developer Software Radio Technology is to pick the correct time to invest. Lumpy contracts tend to mean that there will be disappointing trading periods. The most recent trading statement flagged up a return to profit in the six months to September 2014 and there should be scope for further recovery. The full interim figures will be published on 17 November.

Coms has not had a wholly successful time in the past year with slip-ups in its reporting, but growth has been impressive since Dave Brieth became boss. The interim figures to July 2014 will be published at the end of October and these will provide further guidance on prospects.

It will be difficult for the Crawshaw share price, which is still more than ten times the level it was at the beginning of August 2013, to move forward this year. The 2014-15 profit forecast of £1 million is higher than it was a year ago, but below the £1.3 million it was at the time of the AGM in June. The shares are trading on the equivalent of 44 times prospective 2014-15 earnings, while investment in the roll-out of new stores means that the profit is expected to fall next year. There does not appear much to hold up the share price in the short-term.

One investor that will hope that Crawshaw will not suffer the fate of the majority of ex-winners is Schroders which increased its stake to 5.11% on the day of the AIM awards dinner. Schroders had reduced its stake to 4.82% at the end of July.

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.