UK election could stall flood of Aim listings

The flurry of company listings on the stockmarket looks set to die down towards the upcoming UK general election, Octopus Investments’ Richard Power has said.

The manager of the group’s £21.8m UK Micro Cap Growth fund said many smaller companies had engaged in an initial public offering (IPO) of their shares this year – a move which makes them public for the first time.

This had largely taken place on the Alternative Investment Market (Aim) as opposed to the so-called main market of larger businesses.

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“The main IPO market has suffered some fatigue,” Mr Power said.

“Price expectations started going too high and the books were being run by the main American banks, which were pricing them too tight.”

However, several companies have continued to come to the Aim IPO market this autumn and the pipeline is bulging for the rest of this year and into the first quarter of 2015, Mr Power said.

But after the first quarter of next year, the rage of new issues coming to the market may come to a standstill.

“The market is going to be a bit jittery as the UK approaches election season,” he said.

“The service-based businesses are going to struggle.”

However, Mr Power remains “quietly confident” for his fund’s performance during that period since the political parties support the development of smaller companies.

“There is a good deal of cross-party support and politicians will want to keep up positive legislation and smaller-company growth,” he said.

Smaller companies represented 1 per cent of UK businesses, but generated 36 per cent of UK economic growth in 2013, according to a report released by the centre for Economics and Business Research.

Mr Power said he had been active in this sector after snapping up one in every 15 IPOs from the Aim market.

The manager said the Aim had experienced more IPOs than the main market.

Some companies that could have listed shares on the main market due to their size – such as drinks manufacturer Fever-Tree – chose to list on the Aim because of several advantages it offered, he added.

Mr Power said that one of the main advantages of an Aim IPO was speed, as the documentation for a flotation could be drawn up quickly, while another was some tax relief.

Elsewhere, the manager acknowledged the recent correction in markets had an amplified impact on smaller companies.

“Whenever there is a risk of sentiment, smaller companies are always hit the hardest and this time was no exception,” he said.