What happens to share prices when companies leave AIM?

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What happens to share prices when companies leave AIM?

Both GVC (GVC) and Paysafe (PAYS) left the Alternative Investment Market (AIM) because large acquisitions meant they had to promise the backers of the deals that they would subsequently move to the Main Market.

GVC and Paysafe are still two of the most attractive companies on this list with the potential for growth and strong cash generation.

Another company that continues to do well is window and door components manufacturer Tyman (TYMN). This is an international business that is not dependent on the UK and it still has benefits to come from the integration of acquisitions and cost saving measures.

Moving

There appears little correlation between moving to the Main Market and getting a better share price. When it comes down to it, the performance of the company is the only thing that has a real effect.

Retailer Bonmarche (BON) would have slumped on the back of profit warnings whichever market it was on.

It may even have been the higher profile some of these companies had when they were relatively large on AIM that helped them to gain investor interest, whereas they got lost amongst the larger Main Market companies.

The most persuasive reason for AIM companies to move to the Main Market is to undertake a larger fundraising than they can succeed with on the junior market. The access to a wider range of investors is useful if it is required.

Last month Sirius Minerals (SXX) announced its plans to move from AIM to the Main Market. More than 180 companies have already made the move and 19 have done so in the past four years.

Although the original idea for AIM was to provide a way of enabling companies to grow and build up track records so that they could move to the Main Market, there has been a greater number of companies that have moved the other way.

In fact, some of those companies are ones that have returned to AIM following a previous move to the Main Market.

More than 30 have made their way back. Many of these were technology companies that switched at the turn of the century when they had hyped up valuations.

Their market capitalisations subsequently slumped and they became too small to be noticed on the Main Market.

In fact,Tyman not only came back to AIM in 2004, it has subsequently moved to the Main Market for a second time. Tyman and other companies have used AIM to rebuild their business and generate greater value.

Internet domain names company Netbenefit was valued at £119 million at the beginning of 2000 when it made the move to the Main Market, but the valuation had fallen to just £6.93 million when it returned to AIM at the end of October 2003 – less than one-third of the original flotation valuation of £25 million in June 1999.

Group NBT, as Netbenefit subsequently became known, was taken over in 2011 for 550p a share, which gave it a valuation of £153 million.

It is noticeable how small some of the companies were when they graduated from AIM in its first five years. Many were valued at less than £50 million, whereas none of the last 19 companies were worth less than £50 million and nine were capitalised at more than £500 million – as Sirius will be when it moves.

Not all the former AIM companies moved to a premium listing. Some obtained a standard listing, which is debatably no higher a standard than AIM and, in many ways, such as related parties rules, a lower standard.

There were also a couple of companies that went to the Specialist Fund Segment (formerly Specialist Fund Market), which is a segment of the Main Market.

One of these is activist investor Sherborne Investors (SIGB) (Guernsey) B, which has just announced a 87p a share dividend – the shares are not ex-dividend yet – out of the money it will receive from the Electra Private Equity (ELTA) distribution.

Companies moving from AIM to the Main Market
Company Left AIM Value then (£m) Value now (£M) Joined AIM Initial value (£m)
Sherborne Invs (Guernsey) B 07/05/2013 212.2 482.8 29/11/2012 207
Tyman 08/07/2013 382.3 579.9 04/04/2006 86.3
Gulf Keystone Petroleum 25/03/2014 924.5 268 08/09/2004 121.8
Africa Opportunity Fund 17/04/2014 60.9 26.5 24/07/2007 61
Urban & Civic 22/05/2014 373 345.1 17/07/1995 5
Green Dragon Gas 27/10/2014 754.3 162.3 17/08/2006 277.8
Altyn 19/12/2014 69.7 35 10/06/2004 10
BCA Marketplace 02/04/2015 1225 1441.4 10/11/2014 32.3
Nanoco Group 01/05/2015 255.9 74.4 01/05/2009 81
Zegona Communications 29/09/2015 309.8 280.6 19/03/2015 35.9
Bonmarche Holdings 19/10/2015 151.3 37.3 20/11/2013 110.3
PureCircle 28/10/2015 745.7 548.7 11/12/2007 172.1
Paysafe Group 23/12/2015 1696.6 2256.8 14/04/2004 239.6
Market Tech Holdings Ltd 27/01/2016 879.55 697.4 22/12/2014 843.75
GVC Holdings 02/02/2016 1490.4 2134.08 21/12/2004 130.77
Vinacapital Vietnam Opportunity Fund Ltd 30/03/2016 374.08 568.1 30/09/2003 5.72
Dalata Hotel Group 30/06/2016 553.47 727.2 19/03/2014 281.16
NewRiver REIT 18/08/2016 782.57 790 01/09/2009 25
Secure Trust Bank 12/10/2016 429.33 390 02/11/2011 102

FTSE 250 candidates

One of the things about going to the standard list rather than the premium list is that the company is not able to be included in any FTSE index – even if it is large. GVC had to move to the standard list initially but it did move up to the premium list and get a place in the FTSE 250.

Car auctions business BCA Marketplace (BCA) is still on the standard list, so despite being worth more than £1.4 billion it does not get the benefit of being in an index.

BCA and Zegona Communications (ZEG) both reversed into AIM shells, which is why they were so small when they joined AIM a few months before the switch.

Sirius Minerals should be heading for the FTSE 250 index, where it would join a number of other former AIM companies, including student accommodation developer Unite (UTG), self-storage sites operator Big Yellow Group (BYG), Domino's Pizza (DOM) and IP Group (IPO).

Three out of the 19 recent movers – GVC, NewRiver REIT (NRR) and Paysafe – are already in the FTSE 250.

One former AIM company that is in the FTSE 250 and appeared set to move towards the FTSE 100 index over the next few years was grocery wholesaler Booker (BOK).

That will not be happening if Tesco's (TSCO) £3.7 billion cash and shares merger with Booker is successful – that was equivalent to 205p a share at the Tesco share price at the time of the deal.

The regulators will analyse the competition aspects of the deal, but there appears to be a good chance that it will go through.

While shareholders are waiting, they will get their Booker dividends and the shares yield more than 4%, whereas Tesco has not been paying dividends. Booker had net cash of £160 million at the end of 2016.

The food wholesaler moved to the Main Market on 1 July 2009 when it was valued at £525 million at a share price of 33p.

However, the back story is complicated. Booker returned to the London stockmarket by reversing into a much smaller food wholesaler Blueheath Holdings.

Loss-making Blueheath had big plans to break into the sector on the back of its technology and service provision but it found it difficult to do that. Blueheath joined AIM on 20 July 2004 when it was valued at £49.7 million at 121p a share.

The reversal by Booker took place on 4 June 2007 and that valued the combined business at £450 million, but the share price had slumped since the original flotation.

Investors at the time of the reversal have done well since then, but the Blueheath investors have not done too badly either, although they needed a lot of patience.

Performance

There is a mixed performance from the 19 companies that made the move in the past four years.

Africa Opportunity Fund (AOF) is complicated because it is difficult to find a transfer price, and there were C shares issued at the time of the move to the Specialist Fund Segment, which are probably included in the market value stated in the London Stock Exchange new issue figures.

Taking the other 18 companies, they are evenly split between risers and fallers. There are some big winners, given the limited amount of time they have been on the Main Market, and big losers.

Many of the losers are resources companies. They are more risky because of where they tend to operate, Gulf Keystone Petroleum (GKP) in Iraq, for example, and because the commodity prices have slumped. Gold miner Alynt has also been hit by lower commodity prices and production.

Nanoco (NANO) is an example of a company which has developed a new technology, cadmium-free quantum dots, but the take up has not been as fast as hoped, even with Dow Chemical as a partner.

The peak for the Nanoco share price was in 2013 and a disappointing trading statement has sparked a further slump in the share price.

Anyone who invested in GVC originally, when it had a different domicile and name, would have made their initial investment back in dividends by now. The €0.30 per share dividends when translated into pounds would cover more than 50% of the initial valuation of the company in 2004.

There are a lot more shares in issue following large acquisitions, but it does show how far GVC has come. The recent rise in the share price reflects the rapid integration of bwin.party and the swift return to dividends.

Main movers share price performance
Company Move (p) Now (p) % change
Sherborne Invs (Guernsey) B 103.5 153.5 48.3
Tyman 224 330 47.3
Gulf Keystone Petroleum 1022.5 119.25 -88.3
Africa Opportunity Fund na $0.63 na
Urban & Civic 225 238 5.8
Green Dragon Gas 540 104 -80.7
Altyn 2.83 1.44 -49.1
BCA Marketplace 150 184.75 23.2
Nanoco Group 109 31.75 -70.9
Zegona Communications 160 144.5 -9.7
Bonmarche Holdings 298.5 75.5 -74.7
PureCircle 585 316 -46
Paysafe Group 349.75 466 33.2
Market Tech Holdings Ltd 185.75 145.75 -21.5
GVC Holdings 422 720 70.6
Vinacapital Vietnam Opportunity Fund Ltd 177 283 59.9
Dalata Hotel Group 325 396.88 22.1
NewRiver REIT 324 340.4 5.1
Secure Trust Bank 2350 2113 -10.1

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.