What are the top AIM stocks to watch?
AIM is the most successful growth market in the world and offers investors some unique opportunities and benefits. We have a look at the top 20 AIM stocks.
Updated: 8 July 2020
AIM was launched by the London Stock Exchange (LSE) in 1995, starting life with just 10 companies worth £82 million. Since then, over 3800 businesses have graced AIM and raised almost £118 billion from investors. The companies listed on AIM – from both the UK and abroad – make a significant impact on the UK economy, contributing over £15 billion in annual gross domestic product (GDP), more than some of the country’s biggest industries such as aerospace, automotive, defence or pharmaceuticals.
Why do companies list on AIM?
'AIM is the most successful growth market in the world' – LSE.
AIM is designed for small- and medium-sized businesses that wish to list their company on a stock exchange but are not yet ready for a full traditional listing. The main reason businesses choose to go public on AIM is because they need capital to grow, and sourcing other finance can be difficult.
The number of AIM initial public offerings (IPOs) has been in decline over the last two years. Still, 23 companies listed on AIM in 2019, raising over £3.8 billion, and 8 companies have gone public since the start of 2020 despite the tough conditions caused by the coronavirus, raising nearly £1.6 billion. The peak year for IPOs was in 2005 when nearly 400 new companies joined the market, but it has remained below 100 per year ever since the financial crisis.
The market has proven its ability to provide the vital funding needed to nurture small businesses. The majority of funds raised on AIM is by companies that have already listed, demonstrating that firms are able to tap into vital liquidity even after they have conducted their IPO. There has been over a million trades per month on AIM companies in 2020, representing around £300 million worth of trading every day.
It also brings companies under a recognised regulatory and compliance framework that sets the standards for listed companies, which gives them higher recognition among investors and important institutions like banks and foreign lenders.
However, while the regulatory regime is strict, it is designed to make it easy for new businesses to float on AIM; it does not require a business to be of a particular size (as is the case elsewhere), but instead requires a company to have a three-year operating history and the ability to demonstrate its worth.
Today, there are 840 stocks listed on AIM with a combined value of nearly £88.5 billion. Most businesses that list on AIM end up leaving for one reason or the other - some grow and take a step up to a bigger listing (such as on the Main Market) while some fail and collapse. Others get bought out by peers or are taken back under private control.
Are AIM stocks a good investment?
In a nutshell, AIM stocks offer both higher risk and higher reward for investors. Share prices can move by double digit percentages in a single day and it is not uncommon for a stock to pop higher or lower on a one announcement.
The attractiveness of the AIM market is the ability to invest in companies early on to help build the value of both the company and your investment over the longer term. Many highly successful companies and widely recognised names began their lives as public companies by listing on AIM before moving on to a traditional listing: Domino's Pizza Group, insurance provider Hiscox, self-storage firm Big Yellow Group and bookmaker GVC Holdings, to name a few.
For example, investors could pick up GVC shares for less than 90p each back in 2007, when it was just launching its first sportsbook, but that had soared to £5 days after it joined the Main Market in early 2016. Today, GVC – the owner of Ladbrokes Coral - is a member of the FTSE 250 generating almost £3 billion in annual revenue.
It is important to stress that not all companies are successful and that many fail – often in spectacular fashion. Plus, volatility is much higher than larger stocks because AIM companies can be very sensitive to the slightest development. Winning or losing one contract can make or break many firms, and it is common to see companies completely revamp their strategies.
Langbar International, a cash shell that joined AIM in 2003, saw shares jump from 10p to £10 just on the announcement of a new chief executive officer (CEO) being appointed but, just two years later, that same CEO was jailed for losing £370 million that had been stashed somewhere in Brazil. Investors that had backed Nigerian oil producer Afren are still fighting claims in court today after the firm collapsed under questionable circumstances back in 2015.
The accessibility and success of AIM means investors have an eclectic choice of stocks and sectors to pick from. There are stocks for investors looking to gain exposure in more traditional sectors such as banking, retail, construction and pharmaceuticals – areas often dominated by big and expensive stocks – as well as those seeking something with an edge, with companies working in diverse fields like public polling, video games and automation.
How to invest in AIM
- Decide whether you want to invest in stocks or trade them
- Research the stocks you are interested in
- Open an account with IG to gain access to over 12,000 international stocks, or try out a demo account to try out your strategy risk-free.
- Make your first investment or place your first trade
You can choose to either invest or trade AIM stocks. With an IG share dealing account, you can invest in shares for just £8 per trade. This goes down to just £3 if you make at least ten trades a month. When you invest, you buy the shares outright and are entitled to any dividends that are paid by the business.
To trade shares, whereby you can speculate on whether a stock’s share price will go higher or lower, you can use spread betting or CFD. Traders don’t own the shares outright or benefit from any dividends, but they can utilise leverage. You can read more about the difference between spread betting and CFDs.
What are the tax benefits available through AIM investments? There are a wide range of tax benefits on offer to AIM investors. You can read more about these benefits and how to avoid the bear traps when trading AIM stocks here.
Hutchinson China Meditech (HCM.O)
Hutchison China MediTech is a biopharmaceutical company pursuing treatments for oncology and immunological diseases. It currently generates revenue by manufacturing and distributing prescription drugs and other health products to consumers in China. It is majority-owned by CK Hutchison Holdings Limited, a conglomerate with annual sales of over $500 billion.
The company generated nearly $205 million in revenue in 2019 but it remained loss-making. However, it has outlined a stream of major milestones that will be met this year for several of its projects that could provide trigger moments for the stock. Its cancer drug Fruquintinib was recently given fast-track approval in the US, while its tumour treatment Surufatinib also progressed in the US and China.
The company secured $100 million by selling American Depositary Shares for $25 each to growth equity firm General Atlantic in June. Each ADS is equal to five ordinary shares, so equates to $5 per share. Its London shares are currently trading at £4.40 each.
It already had over $300 million in cash beforehand, so it should have plenty of headroom considering its annual cash outflow excluding financing activities was $83.2 million. Its operations in China have been largely unaffected by the coronavirus outbreak and, although it is monitoring the situation, it seems more resilient than most.
ASOS has been one of the biggest beneficiaries of the transition to online shopping that has left bricks-and-mortar retailers struggling. As it caters for 'fashion-loving 20-somethings’, it is in direct competition with Boohoo. The online fashion retailer has continued to deliver growth in its core UK market as well as expansionary geographies in the US and Europe.
ASOS delivered a ‘record half year performance’ in the six months to the end of February 2020, with revenue rising 21% and pretax profit leaping from just £4 million to £30.1 million after cutting non-strategic spending. ASOS has managed to remain operational during the current crisis thanks to its online model but it has knocked sales by as much as 25% so far and caused supply chain issues.
ASOS sold 18.8% of the business for £247 million under a share placing in early April at £15.60 per share to shore up the balance sheet. But it could have secured a higher price if it waited a few weeks considering shares have recovered strongly from their lows of £10.50 on 17 March. They have risen more than 200% since then and currently trade at £32.23.
Abcam produces and sells protein research tools that are used by life scientists. These include antibodies, proteins and peptides, and research kits, which are utilised in a number of industries, including drug discovery, diagnostics and for basic research. The company is headquartered in Cambridge but has a presence in both the US and Asia. It claims there are around 750,000 life scientists in the world and that two-thirds of them use its products.
The company said revenue rose 14% in the six months to the end of 2019 but profits took a hit as it stepped up investment and incurred more non-cash charges like depreciation, amortisation and share-based payments.
The firm warned that revenue will be lower for the full year as a result of the coronavirus, but says it has started to see something of a recovery as labs in China begin to reopen. It is in a net cash position and has not had to furlough any staff or take advantage of any government schemes, suggesting it is strong enough to see through the crisis.
Boohoo was established in 1996 and has grown into one of the leading players in the online fashion industry. In addition to its core boohoo lines for both men and women, the company also owns a slew of other labels including PrettyLittleThing Nasty Gal, MissPap, Karen Millen and Coast. It distributes many of its products from two UK warehouses, with a particularly strong presence in the US, Europe and Australia.
Boohoo was the most valuable firm listed on AIM a couple of months ago, but it has dropped down the rankings after its share price took a hit following The Sunday Times reporting that one of its suppliers was paying below minimum wage and risking the health of workers by not following social distancing guidelines. Boohoo said it was not a ‘direct supplier’, but has still launched an independent review into its UK supply chain. You can read more about that story here.
Fevertree Drinks, which produces premium mixers for alcoholic beverages, has been a soaring success since listing in 2014, with shares having risen by over 950%. The company has triumphed off the back of the booming market for premium spirits, starting with gin and gradually moving to dark rum and others.
The primary reason that Fevertree has been able to grow so quickly is because it largely outsources key operations like manufacturing, but that does mean it relies on its partners and is more exposed to third-party risk.
Fevertree is the most popular mixer brand in the UK’s off-trade market (supermarkets and stores) and it is still growing its position in on-trade (pubs and restaurants). Annual revenue climbed 10% in 2019 although profits dipped. Still, cash generation remained strong and bolstered its net cash position and the dividend continued to grow.
‘While the on-trade remains fully or partially closed across many of our regions, the group's performance across the off-trade continues to be very encouraging’, it said amid the coronavirus crisis in June. It said that, while coronavirus will have a ‘a material impact’ on trading in 2020, it is financially strong and benefits from diversified streams of revenue.
Top 20 largest AIM stocks by market cap
|Description||(as of 08/07/2020)|
|Hutchison China MediTech||Hutchinson China Meditech||£3.19 billion|
|ASOS||Online clothing retailer||£3.09 billion|
|Abcam||Life sciences||£2.92 billion|
|Boohoo||Online clothing retailer||£2.82 billion|
|Fevertree||Soft drinks producer||£2.61 billion|
|Globaldata||Industry data provider||£1.67 billion|
|RWS Holdings||Language support services||£1.62 billion|
|ITM Power||Hydrogen energy solutions||£1.49 billion|
|Keywords Studios||Service provider for video games||£1.37 billion|
|Breedon Group||Construction materials||£1.36 billion|
|Dart Group||Airline operator (Jet2.com)||£1.36 billion|
|GB Group||Identity software and data services||£1.36 billion|
|Gamma Communications||Business communications||£1.32 billion|
|Globalworth Real Estate||Real estate investment in Romania and Poland||£1.18 billion|
|Burford Capital||Litigation funding||£1.15 billion|
|Blue Prism Group||Automation software||£1.09 billion|
|James Halstead||International manufacturer||£1.08 billion|
|Clinigen Group||Pharmaceuticals||£1.02 billion|
|Ceres Power Holdings||Clean energy fuel systems||£1.01 billion|
|Learning Technologies Group||Workplace digital learning||£914.91 million|
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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