Over the last six months or so I’ve had hundreds of emails asking about Plus Markets listed companys. So not being one to let the grass grow under ones feet I contacted Vivienne Cassley one of the head honchos at Plus Markets Group. After a long email correspondence with Vivienne I eventually twisted her arm. (metaphorically speaking!) Vivienne (a very busy market professional) kindly took some time out to write this article for the Blog. I was going to publish it on the new site as an exclusive but feel it would be best served so that all our subscribers get to read it. It’s an excellent article. Many thanks to Vivienne. A case of champagne is now winging its way to her oops scratch that we owe you a Budweiser!!!
In times of turbulence many investors traditionally make the “flight to quality”, turning their backs on SMEs and retreating to the relatively low risk blue chip sector. Yet the FTSE remains volatile and many market commentators are predicting that the road ahead remains rocky – with shares still significantly overvalued and likely to fall further in the coming year. Add in interest rates stagnating at historic lows and the 50% tax rate chipping away at returns for higher earners, and the question is, what are the options now for private investors?
Last year saw trading volumes in PLUS-SX companies rise by around 100%, building on a 150% rise in 2010. This supports the anecdotal evidence that private investors are currently choosing not to follow the institutional lead but instead are recognising the value of high growth companies in their portfolio, even in a turbulent market.
Particularly actively traded companies included music investment business Imperial Music and Media, Agrochemical development company, Eden Research, and niche communications business, Keycom, along with All Star Minerals and Metroelectric.
Many sophisticated investors have long been active participants in growth markets such as PLUS yet others remain unaware of the opportunities outside the FTSE. Figures from HMRC show, for example, that the majority of the 10,000 or so individual investors invested through the EIS scheme in 2008-09 were male and based in the South East of England. Clearly there is potential to expand participation beyond this group!
For those not familiar with PLUS-SX, it is a Recognised Investment Exchange – a Stock Exchange in other words – focused on smaller growth companies. Its key role is to provide a platform for companies wanting to take the first step onto a public market in an environment suited to their needs.
In practice that means the admission process does not impose specific eligibility criteria on companies (such as minimum trading record or size) but instead requires them to meet certain basic standards to ensure investor confidence and protection. For example, companies have to appoint and retain a PLUS Corporate Adviser to help them comply with public company regulation; they must have published audited accounts within 9 months of coming to market; and they must have sufficient working capital to sustain the business for at least a year.
Companies on the PLUS Growth market are described as “quoted” rather than “listed”, reflecting the fact that they have not submitted a prospectus to the UK listing Authority but have been approved by PLUS itself (exactly as AIM companies are approved by the LSE).
Once on the market, all our companies are governed by the same rules on insider trading and market abuse as fully listed companies so, for example, all potentially price sensitive information must be reported promptly to the market.
There are tax incentives for those investing in growth companies. Investments in PLUS companies are eligible for a number of reliefs including Capital Gains and Inheritance Tax, and shares are also eligible for inclusion in Enterprise Investment schemes and in SIPPs.
Tax is just one part of the mix, of course, and the main reason to invest in any company must always be that the business looks good, and can deliver growth. The best reason to look at PLUS-SX is not necessarily for the Capital Gains or IHT relief but because there are some real “nuggets” – great companies generating some really strong returns for their shareholders.
There are some well-known businesses on PLUS-SX which consistently deliver growth, such as Arsenal and Quercus Publishing. But there are many other, less well-known, companies which also generate good returns for their shareholders.
These include Lancashire based Mechan Controls, which designs and manufactures electronic non-contact safety switches for industrial use. Mechan Controls enjoyed a very successful year in 2011, fuelling growth through acquisition – and indeed has delivered consistent value to its shareholders for the last 3 years, with steady growth in its share price from 125 to its current level of 211.
See Mechan Controls share price 2008 – 2011 http://www.plusmarketsgroup.com/
English wine producer, Chapel Down, also had a great year, providing wine for the royal wedding and recently winning the contract to supply Jamie Oliver’s Union Jack restaurant.
Other strong performers were regulatory consultancy and training business Judicium and long-established PLUS-SX business National Milk Record. New PLUS company, Wey Education, also performed well, making its first acquisition and achieving a share price increase of 40% in just 9 months on the market.
The big challenge for smaller companies – and those who invest in them – is market communication. All small companies know how hard it can be to get themselves onto the radar of analysts and investors, so a key part of our role at PLUS-SX is to make sure that all market participants have access to comprehensive information about our companies.
As part of this, we sponsor a range of services to increase our companies’ profiles. On our website, for example, investors can find independent research into PLUS-SX companies produced by Edison, along with fundamental data and up to date news. Company information and analysis is also carried by leading retail service providers such as MoneyAM and iii.
We also offer private investors and private client brokers the chance to meet senior management of PLUS-SX companies at regular “road-shows” around the UK. A recently published survey by Grant Thornton, “Back to Basics for Equity Markets”, found that 86% of respondents saw one on one access to senior management to be a key factor in enhancing liquidity in a company’s shares. Our experience certainly supports this; road-shows are always very well attended, and participating companies frequently tell us that they have been effective in attracting new investors.
As we head into 2012, the wider picture remains uncertain but it is clear that a healthy SME sector will be key to future growth in the UK. Private investors have a vital role to play in helping entrepreneurial companies to find the funding they need. PLUS-SX will continue to promote its companies actively through 2012, helping investors to seek out the next Quercus or Judicium. If you are not familiar with our companies, take a look at out web-site or join us at one of our investor events. http://www.plusmarketsgroup.com/