Tuesday, November 4, 2008

London's AIM - U.S. Company Performance - Share Price and Liquidity - H1 2008

Highlights
  • U.S. domiciled companies* listed on the London Stock Exchange's AIM achieve a weighted return of 30%
  • Foreign domiciled U.S. operating companies** listed on London's AIM achieve a weighted return of 3%
  • Significant liquidity difference between U.S. and foreign domiciled U.S. companies listed on London's AIM

While there were 45 U.S. domiciled companies listed on the London Stock Exchange's AIM and 40 foreign domiciled U.S. operating companies listed on London's AIM as of June 30, 2008, only 44 of the former and 38 of the latter traded on London's AIM for the entire six months.  The others joined London's AIM during the first half of 2008 and are not included below.

Given the fact that the London Stock Exchange's AIM caters to small and medium-sized, growth-oriented companies, averages can be deceiving.  Of the 82 U.S. companies listed on London's AIM, 14 achieved returns of greater than 25%, 37 lingered around breakeven (± 25%) and 31 lost greater than 25% during the first half of 2008.

 

The weighted returns in the table below were calculated using the average market capitalizations of the U.S. companies listed on London's AIM during the six months, similar to how an index fund would calculate returns.

Unweighted and Weighted Share Price Returns

Unweighted

Weighted
Weighted Excluding
Market Cap. > £250m
U.S. Domiciled Companies
(16%)
30%
(17%)
Foreign Domiciled Companies
(6%)
3%
5%
FTSE AIM All-Share Index
N/A
(8%)
N/A
*   U.S. operating companies listed on London's AIM directly through a U.S. entity.
**  U.S. operating companies listed on the London Stock Exchange's AIM through a U.K. or tax haven entity with central operations and/or decision making in the U.S.

In some respects, weighted results are a self-fulfilling prophesy in that companies listed on London's AIM with increasing share prices, and therefore increasing market capitalizations listed on London's AIM, become more heavily weighted relative to those with decreasing share prices / market capitalizations.  In addition, a company listed on the London Stock Exchange's AIM that is performing well has a better chance of completing a secondary offering on London's AIM and for its share price on London's AIM to hold up relative to the dilutive effects of the secondary offering, further increasing its market capitalization on London's AIM and relative weighting.  When these factors are controlled for by weighting the companies’ returns by their market capitalizations on the London Stock Exchange's AIM as of the beginning of 2008, the 44 U.S. domiciled companies listed on London's AIM gained 7% and the 38 foreign domiciled U.S. operating companies listed on London's AIM lost 3%.

In terms of average monthly liquidity listed on the London Stock Exchange's AIM, the foreign domiciled U.S. operating companies listed on London's AIM outperformed the U.S. domiciled companies listed on London's AIM and, in fact, the London's AIM as a whole.  In all cases, the weighted results equal or exceed the unweighted results, reflecting the positive relationship between a company’s liquidity on London's AIM and its market capitalization on the London Stock Exchange's AIM.  The unweighted results represent the level of monthly liquidity on London's AIM that the average company can expect to achieve.

Average Monthly Liquidity on London's AIM
Foreign Domiciled U.S. Operating Companies
Listed on London's AIM
U.S. Domiciled Companies
Listed on London AIM

Entire
London's AIM
Weighted
6.61%
3.14%
5.70%
Unweighted
6.64%
1.90%
4.39%
 

The key takeaway from the chart above is that there is a liquidity advantage for U.S. companies that list on the London Stock Exchange's AIM via a U.K. or tax haven holding company.  The two main reasons being:

  1. The shares are free from Reg. S restrictions, allowing for electronic trading / settlement
  2. London AIM institutional investors only allocate a portion of their investments to non-U.K. companies 
Nevertheless, irrespective of where a company is domiciled, liquidity on London's AIM can be improved.  The reasons for a lack of liquidity on the London Stock Exchange's AIM are often company specific and not obvious.  As a consequence, thoughtful and thorough investigation is needed in order to formulate actionable solutions.  Several strategic decisions can be taken during the planning of the London AIM IPO to minimize the risk of lack of liquidity on the London Stock Exchange's AIM becoming a problem in the first instance; including, selection of the most appropriate London AIM Nominated Adviser (Nomad), London AIM Nominated Broker, financial PR/IR firm and Independent Equity Research firm.

No comments:

Post a Comment