June 27, 2007

AIM Companies Improve, but Still Underperform in Investor Relations

Research from the accountants and business advisors Baker Tilly and lawyers Faegre & Benson suggests that AIM companies need to work better on communicating.

When asked their perceptions of the investor relations activities of AIM companies, only half (51%) of the 51 institutional investors polled in Baker Tilly and Faegre & Benson's survey said that they consider them effective – and only 4% think them ‘very effective'. But, one in three polled investors considered AIM companies' IR attempts were ineffective.

The research shows that investors believe AIM companies still have scope for improvement, with 22% of institutions calling for corporates to adopt a more proactive approach to investor relations. Specifically, 16% of investors would like to see an increased level of IR activity and 12% would prefer a more two–way, responsive and open dialogue with AIM companies.

In spite of its importance, only around half (51%) of the 203 AIM companies researched by Baker Tilly, said that they received any introduction to or instruction in Investor Relations as part of their IPO process. However, this is perhaps becoming more widely accepted – as two years ago, only 41% of all companies said this, and this year, recent market entrants were a little more likely than longer-established AIM companies to have had input in this area (55% and 50% respectively).

The research showed that 43% of companies polled spent 3-5 days a month of senior management time on IR, but 10% spent less than 1 day. Perhaps not surprisingly, overseas companies find it takes up more management time - 19% more than 5 days a month, compared with 14% for UK companies.

However, while 79% of respondent companies said that this is as expected, one in six (16%) admit that it is more. UK companies are particularly likely to find that it takes longer (19% vs. 3% of overseas companies).

Most companies feel that the time and resource they put into IR is fully reflected in both the City's understanding of their company (58%) and the level of interest in the company and its shares (64%). Nevertheless, more than a third are clearly disappointed with the return on their efforts – 36% say that IR input is not fully reflected in the City's understanding and 34% say this of the interest in the company's shares.

Recent AIM entrants (66%) and overseas companies (67%) are particularly likely to say that their IR effort has been reflected in the City's understanding.

Chilton Taylor, head of capital markets at Baker Tilly commented: "Having acted on over 250 AIM listing transactions we get to see the importance of properly marketing the equity and investment case first hand. AIM management teams wanting the market to reflect fair value must make the effort to lead the IR strategy and not simply rely on their brokers and financial PR consultants."

Melanie Wadsworth, a partner in the London Corporate Group at international law firm Faegre & Benson LLP and a member of the AIM Advisory Group, called for more IR induction training as part of the IPO process: "Keeping your company front-of-mind in a noisy marketplace is key for companies looking to maximise the advantages that an AIM listing has to offer – and good Investor Relations is central to this. It is encouraging to see that the number of companies receiving formal IR instruction as part of the IPO process has risen by some 10% in the last two years but we need to see this figure increase much further. This is important for AIM companies' individual success – and also for the competitiveness of the AIM market as a whole."

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