Thursday 19 March 2009

Looking at liquidity on AIM

This week I attended an event organised by Vitesse Media's Growth Company Investor and BDO Stoy Hayward about “Liquidity on AIM”. The task was to find AIM’s most robust stocks with a market cap over £10 million. Vitesse Media and BDO assessed the trading statistics of every single AIM company, a total of 1550, over a six month period. They whittled down the list to just 106 companies with a market cap of over £10 million, and that had at least 50% of its shares traded in the six months. For these select companies, sales levels, profit levels, growth rates, and levels of corporate governance were all scrutinised, as well as brokers, advisors and market makers.

The findings note that there is a strong correlation with trading volume and the number of market makers supporting a company. A greater commitment by directors to engage with analysts and brokers can be well worth the time involved. There was a lot of emphasis put on corporate governance, since on average there ware more non-executive directors and separate Chairman and CEO roles in the most liquid companies. Happily, the most significant factor in liquid stock is NEWSFLOW. I quote: “Companies, especially smaller companies with little following, will see their shares trade and re-price only when something happens. By contrast, those that actively disseminate news and results should see trading volumes improve.” BDO continues to say although this takes quite a bit of management time, persistence does pay off.


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