‘Many AIM firms question future of market,’ energy supplier chief warns

The future of London’s AIM market is “delicately balanced” with “many” companies considering delisting, warns the chief executive of rival energy supply firm Yu Group.

Bobby Kalar told shareholders on Tuesday he was disappointed by the lack of engagement from large institutional investors and frustrated by the “lack of appreciation” for the company’s financial performance.

This followed a period of poor performance on the AIM market, a sharp increase in the number of delistings and a decline in new entrants, which undermined the market’s credibility as an effective driver of small business growth.

Kalar said: “Many AIM-listed companies are questioning the future of the market and their desire to remain listed.”

London’s appeal as a place to publicly list companies has been tested in recent years, with critics pointing to evidence of undervaluation, poor performance and poor liquidity, among other things.

As a result, large companies seeking to list on the stock exchange ignored London, companies were taken over by private investors and shares were transferred to competing markets or delisted altogether.

Industry and government have worked together to make the London capital market more attractive, although reform has focused mainly on the FTSE 100 and FTSE 250 indices.

According to the London Stock Exchange Group, AIM is “the world’s most successful and established marketplace for dynamic and fast-growing companies”, which benefit from access to “a diverse investor base and a supportive community of advisors who understand the needs of entrepreneurial businesses”.

However, a lack of liquidity in the market contributed to weak share price growth for many AIM-listed companies, as well as excessive price volatility in response to company updates.

The FTSE AIM 100 index – the 100 largest companies on the AIM market – is up just 3 per cent over the past year and is around 30 per cent lower than it was before the COVID pandemic. A similar pattern can be seen in the AIM All-Share index.

New IPOs on AIM have yet to recover to pre-COVID-19 levels following an initial post-lockdown surge in 2021.

EY data shows four companies listed on AIM in the first quarter of 2024, after nine companies listed last year. By comparison, 16 new companies entered the market in a single quarter three times in 2017-18.

Separate data from accountancy firm UHY Hacker Young shows that fewer IPOs and more delistings have pushed the number of companies in the index to its lowest level in more than 20 years.

Yu Group’s Kalar said the decline reflected companies’ dissatisfaction with the market.

The group, a specialist provider of energy and utilities solutions to businesses in the UK, saw revenues rise by 60 per cent year-on-year to £312.7 million in the first half of 2024.

Adjusted profit before adverse effects rose 49 per cent to £20.4 million, driven by demand for smart metering solutions.

It is one of the fastest growing suppliers in the B2B segment, with its market share increasing to 1.8% from 1.4% at the beginning of the year.

Kalar said: “The lack of institutional commitment is disappointing, despite management delivering tremendous value year after year.

‘Many AIM companies are questioning the future of the market and the desirability of remaining listed. This has been reflected in the reduction of listed companies.

“The future of the AIM market is delicately balanced and will not improve if the current government continues to penalise and discourage enterprising, high-growth companies.”

Kalar holds a significant stake in Yu Group

Yu Group shares have risen a staggering 1,667 per cent in the past five years to 1,590.5 pence. The shares are up more than 30 per cent since the start of the year, but management believes the company remains undervalued.

President Kalar is also the company’s largest shareholder, owning 51.6 percent of the shares, according to the company’s website.

Yu Group’s second and third largest shareholders, Jamieson Principal Pension Fund and Premier Miton, hold 6.6 and 6.3 percent respectively.

Analysts at SP Angel maintain a buy rating on Yu Group shares and set a target price of 2,100 pence – around 32% above current levels.

The analysts wrote in July: “We still see Yu Group’s revenues potentially exceeding £1.4 billion in a few years.

‘Given the FY24E P/E multiple of <10x, which represents a 33% discount to the market, we maintain a Buy rating on the stock.'