Thrill seekers should AIM for junior market

Risky stocks where you can win big – or lose it all!

FeVeR-TRee revealed earlier this week that boss Tim Warrillow had quadrupled his pay package last year to rake in £4m.

That might seem a lot for the chief executive of a company listed on London’s junior stock market, AIM, which is traditionally reserved for smaller, riskier businesses.

But it is dwarfed by the sums Warrillow and his co- founder Charles Rolls have made from selling shares in the posh tonic company. Together they have cashed in more than £300m, and still own shares worth more than £42m.

Investors won’t be complaining because they have made a packet too. Since the company listed in 2014, its shares have shot up by a massive 1780pc. Anyone who invested £1,000 in the business after its initial public offering would now be sitting on £18,800.

Fever-Tree is one of the great successes of London’s Alternative Investment Market, which was founded in 1995.

AIM

was designed to sweep away onerous listing requirements in order to allow younger firms to trade on a public market and have a go at pulling in money from a wide array of investors.

There have been some stupendous successes.

Over the last 10 years, a canny stockpicker could have made a 6990pc return from ploughing money into biopharmaceutical company hutchison China Meditech. Greeting card company IG Design Group – which makes the Queen’s Christmas crackers – has returned 2720pc for shareholders over the last decade.

Litigation funder Burford Capital has generated returns of 1260pc since 2014, and over two years Regal Petroleum was the best performer making a 926pc return.

And anyone who put money in stem cell research firm Reneuron at the New Year would have made five times their investment back.

elaine Morgan, manager of the Kames UK Smaller Companies fund, explains that because the businesses which list on AIM tend to be in their nascent stages, they can grow rapidly if they end up creating a product or service which takes off.

Paul Mumford, manager of the Cavendish AIM fund, points to Asos. Soon after the business listed in 2002, when few had thought about internet fashion shopping, Mumford invested £150,000 from the Cavendish AIM fund at 75p per share. When he sold the last part of his stake a few years later, the shares were trading at £22. They are now worth more than £40, having hit all-time highs last year of almost £78.

early stage companies are attracted to AIM because they don’t need such a long track record as if they were applying to the main market. Governance and reporting requirements are also less stringent.

But this means they may also be more risky.

When AIM- listed Patisserie Valerie went bust earlier this year following an accounting scandal, questions were raised over whether the lighter regulatory touch made frauds easier to conceal.

Matt hoggarth, an analyst at Thesis Investment Management, says: ‘Patisserie Valerie comes up as an elephant in the room when people talk about AIM stocks.

‘We think it’s a one-off case, and there have equally been problems in main market companies.’

energy supplier Yu Group raised eyebrows last year when it admitted massive miscalculations in its accounts, and in 2005 construction group Langbar collapsed when £370m seemingly disappeared.

Mumford dismisses the idea that AIM is more prone to fraud.

he points out that companies must still have their accounts audited, and are required to appoint a professional adviser to ensure they comply with their market obligations. he recommends investors spread their money across a variety of companies, or consider investing in an AIM fund which does that for them.

AIM stocks can also be risky because of their lack of liquidity which can make it harder for investors to sell at a good price.

Founders or major investors can own huge chunks of shares, meaning outside shareholders may not always get the hearing they would like.

COMPANIeS

often tend to be narrowly-focused compared to their main market peers, meaning that increased regulation or a setback in their niche can cause a significant hiccup.

There can also be tax advantages in terms of savings on inheritance tax and capital gains tax,

Looking ahead, Morgan has her money on law firm Knights and challenger stock exchange Aquis to be strong performers over the next few years. Mumford likes pharmaceuticals firm Clinigen.

For savers seeking a thrill from their money, and who don’t mind taking some risks, AIM can provide an exhilarating ride.