By Nathalie Thomas
Published on Wednesday 28 December 2011 04:12
FOUR out of ten companies quoted on the Alternative Investment Market (Aim) are in “poor financial health”, according to a stark report.
Research group Company Watch found that 41 per cent of the 750-plus Aim firms it surveyed could be described as being in a “warning area”.
History shows that, over the past 13 years, one in four companies that find themselves in this “danger zone” either file for insolvency or are forced to undergo a major financial restructuring.
The worst performing sectors on Aim are companies specialising in motoring, the research revealed, followed by telecoms firms, leisure, construction and property.
By contrast, Aim-quoted energy, logistics, manufacturing and pharmaceuticals businesses have performed well over the past year.
Nick Hood, head of external affairs at Company Watch, which specialises in monitoring the financial health of companies, warned that the picture was only likely to deteriorate over the coming year.
He said: “Our survey shows the strains affecting companies listed on Aim in these tough times. It highlights that sectors most affected by government cost-cutting and the collapse in consumer confidence, such as construction, leisure and motor are in serious trouble. In all of these sectors, prices are under severe downward pressure, profit margins are falling and major stake holders such as banks, suppliers and trade insurers are applying increasingly strict credit policies.
“The fact that the whole market only rates at 44 per cent of maximum financial health and that 41 per cent of non-financial Aim stocks are in our high risk warning area is deeply worrying. Worse still, these figures are based largely on 2010 financial results. As accounts for the more troubled 2011 start to be filed from next March onwards, we fear that the sluggish growth now hobbling the UK economy and the slow-motion financial car crash in the eurozone will create an even worse profile for Aim companies.”
In the year to date, the FTSE Aim All-Share index has lost almost 25 per cent of its value, compared to a near 9 per cent drop on the FTSE All-Share index and 8 per cent fall on the FTSE 100.
Among the Aim market’s more troubled stocks this year was Media Square – the company behind PR firm Smarts in Scotland – which was acquired in a management buy-out earlier this month. The MBO was announced just hours after shares were suspended and administrators were appointed following a refusal from Media Square’s lenders for extra backing.
Miner ATH Resources, which has all five of its open cast pits in Scotland, warned investors in October that rising costs and a failed takeover attempt had eaten into profits.
Your view
Please sign in to be able to comment on this story.