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Gambling and resources, with a smattering of asset management, insurance and retailing dominate the upper reaches of AIM, the London Stock Exchange’s flourishing junior partner. Fifteen companies, led by online gaming group Sportingbet, together command a value of £16 billion, nearly 23 per cent of the combined £72 billion capitalisation of the 1,473 companies quoted on AIM.

It may be debatable whether this emphasis on speculation says more about the British love of a flutter or the uncertain state of a world being transformed by the industrialisation of China, India and large parts of Asia and Latin America. Although the main motors of AIM’s current growth are radically different and possibly more soundly based than its first flowering during the late 1990s dotcom bubble, those internet-related companies which have demonstrated staying power can still command a premium.

Sportingbet, floated five years ago at 120p and boasting internet sports betting operations in Europe, the USA and Australia, has quadrupled since then, helped by aggressive acquisitions. Now worth some £1.9 billion, the company recently increased interim profits 126 per cent to £41.3 million pre-tax, helped by the takeover of Paradise Poker and analysts expect a 72 per cent full-year increase to nearly £100 million pre-tax for the full year.

Chief executive Nigel Payne said recently the company had more than 3.9 million registered customers, who placed 290 million sports and gaming bets and played 339 million games of poker in the first half year. With an established position, Sportingbet is likely to confront more deal opportunities, while observers speculate on whether a move to the main London Stock Exchange would add anything to the mix.

Another gambling counter, Playtech, has enjoyed a warm market reception since brokers Collins Stewart and Seymour Pierce floated it in March, taking out some founding holdings at 257p. The company, which develops gambling software such as ‘Videobet’ and operates online casinos, poker rooms and bingo halls for US, UK and international markets, lifted net profits more than fourfold to $35.6 (£21 million) last year and is already worth £683 million at 320p.

Resources hold the stage

But most of the top market values are in resources. Sporting a £1.7 billion price tag, First Quantum Minerals, which is also quoted in Toronto, has seen its shares soar from 2,345p to more than £27 since broker Canaccord floated it five years ago.

Whoever said Canada was a boring country was clearly not an AIM punter, since First Quantum is one of the market’s most popular resource plays either based or quoted there, or both. The company’s copper, gold, cobalt and other ventures in Zambia and the neighbouring Congolese province of Katanga are showing encouraging progress.
Last year brought a 187 per cent increase in copper production to 263 million lbs.

Chairman and chief executive Philip Pascal recently clinched a £140 million (improved) bid for fellow AIM counter, Congo copper tailings player Adastra Minerals.
Another Canaccord copper and gold counter is tightly-held Yamana Gold, headquartered and listed in Toronto, which has achieved an AIM value of £1.6 billion on the strength of a clutch of prospects in Brazil. The company, which says it expects gold production to start this year, with copper following in 2007, is raising more funds to accelerate expansion and finance acquisitions.

Much recent drama attended one of the projects being pursued by another AIM resources heavyweight, Sibir Energy. Controlled by Moscow oil and property magnate Chalva Tchigirinsky and one of his confederates, Sibir has won a £1.4 billion tag on the back of its joint venture with Shell in Russia’s Salim oil field.

Holding an estimated 900 million barrels of oil, the Salim joint venture property is expected to lift production to 60,000 barrels a day by the end of the year, not to be sneezed at with crude fetching more than $70 a barrel. There are hints that a step up to the Full List could be in contemplation.

Sibir owns 40 per cent of Moscow Oil & Gas, which in turn has 51 per cent of Moscow Oil Refining. Local oil group Sibneft, until recently controlled by oligarch and Chelsea Football Club chairman Roman Abramovich, wanted control of MOG and its 150 high-margin petrol stations, and moved to oust Sibir from its near-half share in another project, the Yugra oilfield.

A series of legal battles ensued, but Gazprom now controls Sibneft and Sibir expects a solution ‘in months’. The company says it still has £85 million in the bank after its Salim outlay.

Russia is one of the sources of gold production for Bema Gold, based in Vancouver, advised by the ubiquitous Canaccord and also valued at £1.4 billion. The company boasts a flagship project at Kupol and operates the Julietta mine, both in Russia, together with significant operations in South Africa and Chile and, despite a derivative-swollen £15 million quarterly loss, boss Clive Johnson has won favour with a one million oz gold production target for 2009.

Weighing in at around £820 million comes Russian gold producer Peter Hambro Mining, which has also set itself the target of increasing annual production from 249,000 oz last year to one million oz in 2009. Helped by his exceptionally well-connected Russian colleague Pavel Maslovsky, chairman Peter Hambro has put the company into some attractive-looking mines in Far Eastern Russia, though local cost inflation and the expenses of the production drive have recently eaten into profitability somewhat.

These successes should not blind investors to the unavoidable risks involved in the resources game. Alberta-based First Calgary Petroleum soon became a market darling after its 2002 float on the strength of gas prospects in Algeria’s Berkine Basin. The shares rose as if unstoppable from 52p to nearly £10 amid hopes of the big deal that gas reserves worth potentially as much as £4.8 billion would provoke.

But the big deal has remained elusive and the shares have almost halved to 550p. Even so, First Calgary is still valued at £1.1 billion and stands at more than ten times its
float price.

Mixed fortunes for finance and retail

Fortunately, home-grown talent can do just as well on AIM as luminaries from the other ends of the earth. John Duffield, one of the fund management stars of the 1980s and 1990s, sold out of his Jupiter group 11 years ago in an ultimately acrimonious £160 million deal with Germany’s Commerzbank and launched New Star Asset Management in 2000.

The group soon pulled in billions of funds from retail investors and last year Duffield floated it with a market value of £704 million. Its value has soared to £1.3 billion and his personal stake was recently put at nearly £200 million.

Finance of a different order is the speciality of Isle of Man-based NETeller, which claims to be the world’s leading online money transfer services provider. With a 2.5 million customer base and 3,400 online merchants, the company is expanding in Europe, Asia and elsewhere under chairman Gord Herman and president and chief executive officer Ron Martin.

Pre-tax profits more than doubled last year to $97.8 million (£59 million) on revenues up 108 per cent to $172 million. Floated two years ago at £2, NETeller’s shares have fallen from last year’s 919p peak but at 748p still value the company at nearly £905 million.

In a ‘nation of shopkeepers’, it is appropriate that at least one retail group, West London-headquartered women’s and men’s clothes and accessories seller Monsoon, should feature in AIM’s first fifteen. Chairman Peter Simon, who started in 1973 selling hand-knitted coats from a barrow in Portobello Road, has built the company into a group making more than £53 million a year and commanding a market value of
£673 million, with a notably well remunerated board.

Monsoon’s shares have nearly quadrupled in three years to 380p, though off its best since the company warned that trading since January had become ‘very difficult’. Simon recently pulled out of talks to buy the 24.6 per cent of the company not already owned by his family.

A newer AIM heavyweight suffering from recent selling pressure is reinsurance specialist Lancashire Holdings, which joined the market only in December with a £657 million float. Headed by Richard Brindle, former deputy to controversial erstwhile Lloyd’s star underwriter John Charman, the company set up operations in the offshore reinsurance centre of Bermuda to take advantage of expected strong premiums after last summer’s US hurricanes.

Despite an initial loss of £7 million, Brindle said trading conditions were ‘excellent and will improve further’. But broker Merrill Lynch has contrasted Lancashire’s ‘attractive expected return’ with its ‘significant risk’ and a cautious stock market has marked the shares down from 355p in December to 304p, valuing the company at £595 million.

Africa beckons the bold

However, it is hard to escape the press of resource companies among today’s AIM leaders. The promise of Africa has stimulated many, notably Central African Mining & Exploration (CAMEC), one of Zambian-born cricketing entrepreneur Phil Edmonds’ more successful recent ventures.

Floated at a mere 3p four years ago to identify prospects in Namibia, Congo, Mozambique and elsewhere and steered by Edmonds’ indefatigable Zimbabwe-born confederate Andrew Groves, CAMEC has soared by involving itself in a variety of potentially promising projects. These include the £47 million cash-and-shares purchase of International Metal Factors, with a cobalt joint venture in Katanga, as well as taking 51 per cent of South African fluorspar play Nelesco.

Shares in CAMEC, which raised £29 million in February at 36p to pursue Congolese copper and cobalt projects, recently tipped 90.5p, though they lately eased back to 83p, where the company is valued at £715 million. Edmonds has had his critics in the past, but US institutions have been showing interest and there could be more to come.

West Africa has provided the prime source of interest for Equator Exploration, chaired by Sir Sam Jonah, one-time protégé of Lonrho tycoon Tiny Rowland and life president of AngloGold Ashanti. Floated at £1 in late 2004 to develop oil and gas prospects in the Gulf of Guinea, the shares nearly hit £4 before sliding back to 335p, putting a £588 million price tag on the company.

Equator is drilling offshore Nigeria with another company, Pedal Petroleum, to the east of Shell’s 1.4 billion-barrel Bonga Field. Chief executive Wade Cherwayko says Equator’s Owenare AX1 exploration well has ‘significant potential’.

Another West African country, Mauritania, boasts the offshore Chinguetti oil field, where Hardman Resources has moved into production. Chinguetti is generating cashflow to develop another Mauritanian prospect at Tiof.

Hardman recently announced a £65 million placing to explore prospects in Uganda and, across the Atlantic, in Guyana and Surinam in South America. Floated at 23.75p four years ago, Hardman now trades at 98.25p, with a market tag of £647 million.
Of these AIM leaders, Sportingbet looks to have momentum behind it and should at least maintain its rating, while Playtech could repay a punt. First Quantum is well established with institutions, while New Star has a firm following.

CAMEC has speculative appeal and continuing gold strength would support Bema and Peter Hambro. Hardman’s prospects look fair and Equator has appeal for punters.