Companies: AOR    BPRG    CFE    CIR    CUC    DSY    ESV    NWG    RPP   

The number of new issues might have slipped in the past year, but it's still the place to make money. The 60 small companies that have joined Aim since last October have posted an average gain of 40 per cent. Elliott Davis investigates

It has been a peculiar year for London's new issues market. On the one hand, the build-up to the Iraq war weighed heavily on flotation activity, with just 66 small-and medium-sized companies arriving between 1 October 2002 and 30 September 2003 – a 33 per cent reduction on the previous period. Yet it also proved to be a tremendously successful year for those brave enough to take the plunge, as new issue share prices soared by an average of 36 per cent over the period.

Aim was once again the hub of new issue activity, welcoming 60 of these newcomers and watching them rise by an average of 40 per cent. Given that the new issue class of 2001/02 fell by an average of 14 per cent and that, since October 2002, the Aim Index his risen by a more modest 25 per cent, this represents a phenomenal achievement.

Centurion heads Aim legion

The best performing new issue was in-car entertainment system developer Centurion Electronics. It rose head and shoulders above the rest, racing up 278 per cent to 113.5p since its December flotation. Originally valued at £6.3 million and now worth £24 million, Centurion recently left float broker Daniel Stewart to join the stable of more high-profile broker Charles Stanley.

Others that have at least doubled include BioProgress, developer of soluble films used to coat pharmaceutical pills; marine propulsion innovator RingProp; and Capricorn Resources, the Phil Edmonds-headed mining investment business. All of these were valued at less than £15 million on launch.

Mining was by far the most active new issues sector, welcoming 13 new Aim firms, six of which make it into the list of the top 20 best performing stocks. Other relatively active areas were health, with five; investment companies with five; and other financial with eight. The latter two being respectively the worst and best performing of the major sectors.

Busy brokers

Investigating which brokers were behind the best new issues is a valuable endeavour that investors can undertake. It's a means of assessing the 'trainers' behind the new issue 'horses'.

Collins Stewart was the most active Aim broker, reaffirming its reputation as Aim's most powerful stockbroking firm. It organised the junior market's largest ever fundraising (netting £390 million for the now fully listed Northumbrian Water) and helped seven other companies raise a combined £100 million.

To put this in some context, the Terry Smith-headed firm was responsible for more than three-quarters of all the £620.87 million cash raised by new Aim firms in 2002/03. Its total of £486.69 million dwarfed the £20.8 million garnered by closest rival WH Ireland for its six floats.

For all its achievements, however, the 25 per cent average share price gain of its clients this year was eclipsed by many.

Relative minnow Hichens Harrison finished top of the class in terms of the performance of the companies it brought along. Its three new clients, Capricorn, Resources, DawMed Systems and ESV, gained an average 77 per cent.

Fellow small brokers Christows (75 per cent) and CFA Securities (52 per cent) were the next best performers – trumping the performance of the more high-profile outfits such as Seymour Pierce (40 per cent), Numis (27 per cent) and WH Ireland (20 per cent).

However, this trend should not come as too much of a shock to regular Aim watchers. Last year, Granville Baird topped this list, while JM Finn was the best performing broker in 2001. The reason, as one broker pointed out, is that compared to Collins Stewart and Numis et al, the likes of Christows and CFA bring much smaller companies to the market and, 'it's far easier for a company's value to double at £2 million than it is at £50 million.'

Transfers and returns

In addition to the 60 new issues, Aim also welcomed a further 45 Full List transfers during the year. While these have often been portrayed as rather stuffy old-economy ventures in the past, it was interesting to note that they outperformed their younger rivals, if only slightly, rising by an average of 41 per cent.

Less successful though were the five firms which returned to Aim after brief sojourns on the senior market. Between them AFA Systems, Aortech International, Coffee Republic, PNC Telecom and Touchstone fell by an average of six per cent, the strong showing of Aortech being wiped out by PNC's 92 per cent plummet to just 1.5p.

As in past years, many of 2002/03's Full List refugees came from the traditional sectors, with household goods & textiles accounting for eight transfers and engineering & machinery welcoming four. Somewhat surprisingly, a high proportion also came from the hi-tech arena, most prevalently software & computer services, where the resurgent patsystems (up 244 per cent at 15.5p) headed a pod of nine.

Once again, Collins Stewart was among the most active players in the transfer market, playing a role as either broker or adviser to a total of six firms.

Though quiet on the new issues front, other Aim big guns such as Brewin Dolphin, KBC Peel Hunt and Teather & Greenwood also played a major role in the transfer market, while Evolution Beeson Gregory led the field. In all, EBG helped eight firms switch listings, raise a combined £12.48 million en route and watch their prices surge by an above- average 44 per cent.

Two newcomers to watch

Of the past year's crop of new issues, bus service and luxury coach hire firm Tellings Golden Miller looks particularly intriguing.

Despite only arriving on Aim in early August, the company – which runs 17 bus routes in south west London and a further 20 in Surrey – has been quick to impress. Interim numbers to June showed surging pre-tax profits of £1.5 million (a near 170 per cent rise) on sales increased from £9.6 million to £12.6 million. Accompanying news of a major new bus contract servicing Heathrow Airport, meanwhile, is expected to add a further £1 million to the top line annually.

In their brief time on Aim the shares have chugged up 56 per cent to 109.5p. Yet, even at this level, research house Hardman & Co's forecast of a £2.74 million full year profit and 8.8p of earnings means they trade off a not overly expensive p/e of 12.4.

Among the transfers, crockery business Churchill China has the potential to be a smashing portfolio stock. Its latest interims were disappointing, largely on account of a £1.3 million restructuring of the group's manufacturing operations, but with this hit now taken, a solid recovery is expected in 2004.

Valued at less than £20 million, debt free and currently valued at 9.8 times forecast 2003 earnings, Churchill looks one to tuck away and offers a tempting 5.7 per cent dividend yield too.