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Q3 AIM Market Overview

Mark Robinson, Companies Editor – Investors Chronicle
29 July 2019

One of the ancillary benefits of investing in London’s junior market is that, in certain instances, it offers significant tax breaks. The assumption is that to draw in capital to fund higher-risk businesses, those with restricted or limited access to senior debt sources, government policy makers created a favourable tax regime for investors.

This includes a tax break known as Business Property Relief (BPR), applicable for some investments in smaller companies that have been held for at least two years. It basically allows investors to pass certain categories of AIM shares down to the next generation free of inheritance tax.

However, a recent government review has cast doubt on the rationale for the tax benefit. The Office of Tax Simplification (OTS), as part of an advisory review into the existing regulations governing inheritance tax, questioned whether the treatment of AIM shares is wholly relevant to the underlying rationale behind BPR, namely to avoid the forced sale of a family business upon the death of its owner/founder.

The OTS mused that the abolition of BPR, together with related tax measures linked to Agricultural Property Relief, could fund a cut in the overall rate of inheritance tax, though the findings wouldn’t have impressed AIM administrators at a time when primary listing markets are showing signs of renewal.

Whether it’s a case of ‘green shoots’ is difficult to say, but EY’s latest IPO tracker shows that three times as many companies listed on the London Stock Exchange in the three months to June compared to the first quarter of 2019. The momentum shouldn’t disguise the fact that overall listings are still down on the comparable point in 2018, but one suspects that a sizeable backlog is still in evidence. The LSE’s main market accounted for 10 primary admissions in the second quarter, raising some £3.8bn, while AIM welcomed five new additions, which generated £194m.

New listings aside, the controversy over the lop-sided UK audit market rumbles on. Barely a month passes without revelations linked to an accounting scandal, so many of the main players in the UK audit market are initiating in-house reforms, presumably in advance of formal regulatory strictures.

Grant Thornton, stung by criticism over its audit work on Patisserie Valerie, has decided to implement several new initiatives, including a new Audit Quality Board, a multi-million-pound investment in improving training and systems and an independent review of audit practices. Whether this amounts to window dressing or a serious attempt to improve oversight is difficult to say, but it’s clear that the problems are industry-wide and systemic.

Bosses at Grant Thornton can take solace in the knowledge that the firm has replaced KPMG in second place in the AIM Health Care rankings. Meanwhile, the lead is now shared in the FTSE AIM 100 with KPMG moving up alongside PricewaterhouseCoopers (PwC), after the latter auditor shed a client through the period. Deloitte makes up the podium places, taking third on a standalone basis on the back of two new mandates. KPMG is up into a share of third place in Basic Materials alongside Chapman Davis, while Crowe UK and PwC moved up a single rung into a share of seventh on the ladder. BDO leads the way in the broad Industrials category and has moved into second place behind PwC by aggregate client market-cap, while Deloitte and PwC have taken a share of the silver medal in the Oil & Gas sector, to go along with their first and second placed status by aggregate client market-cap.

Within the stockbroking space, Shore Capital’s deal to acquire Stockdale Securities was wrapped up in March and it has had a profound impact on our AIM stockbroker and nominated adviser (NOMAD) rankings. In the overall client rankings, N+1 Singer added a net two new clients and moves up to joint second place with Cenkos Securities. The leading stockbrokers in the AIM 100 rankings – Numis Securities, Peel Hunt and Investec Securities - were unchanged from the previous quarter even though they expanded their index constituent numbers. Shore Capital Stockbrokers provided the most noteworthy changes via several new mandates. finnCap has taken a share of first place in the Industrials sector, alongside WH Ireland.

Shore Capital’s integration of the Stockdale stable also altered our NOMAD rankings to a significant degree. N+1 Singer has replaced Allenby Capital in third place in the rankings after netting two advisory mandates through the quarter. finnCap retains its lead by overall numbers, while Numis Securities holds a sizable advantage over the field by aggregate market-cap. Shore Capital & Corporate nearly doubled the size of its client roster following the completion of its £8.9m tie-up. Honours are still shared at the head of the Financials sector by Cenkos Securities and Grant Thonton, while Numis Securities is into joint fifth place with Panmure Gordon. finnCap now holds the outright lead in the Health Care sector, dropping erstwhile joint-leader Panmure Gordon into the silver medal position. Perhaps the influence of the Stockdale deal is best illustrated in the Industrials sector, where Shore Capital & Corporate moved up from 12th to third place.

It was a relatively subdued affair for our Financial PR consultancies. The overall gains for Instinctif Partners were reflected in its AIM 100 tally, sending the consultancy up three places into a share of third place with Alma PR and MHP Communications. Brunswick Group headed up the mid-table rankings on the back of a new mandate from Bushveld Minerals. Tulchan Communications and Camarco recorded solitary gains in the index, though that was enough to substantially increase the aggregate value of the former adviser’s index constituents. Blytheweigh has supplanted St Brides Partners at the head of the Basic Materials sector. Buchanan now shares the lead in Consumer Goods, alongside Alma PR, while Newgate Communications now holds the lead in the Consumer Services sector on a standalone basis. Camarco has taken the lead in the Financials sector and Buchanan is up into third place after Newgate Communications shed clients through the quarter. Vigo Communications moved into a share of the lead with Camarco in the Oil & Gas sector after it was handed communications duties for Independent Oil & Gas.

Finally, no wholesale changes within the Law Firm rankings, though CMS has taken top billing at the expense of Gowling WLG in the AIM 100 rankings. The latter law firm dropped into joint second place alongside Pinsent Masons. Pinsents Masons has pulled alongside Covington & Burling for a share of the lead in the Health Care rankings, while Eversheds Sutherland has supplanted DLA Piper at the head of the rankings by aggregate market-cap. Pinsent Masons has taken pole position in the Oil & Gas rankings at the expense of Watson Farley & Williams, though Fieldfisher holds that distinction by aggregate client market-cap.