Almost a tenth of AIM companies now sitting in the 90% club
87 companies, or 8%, of the 1086 listed on AIM are current members of the 90% club, according to Banc De Binary, the leading binary options trading firm.
The 90% club consists of those companies whose shares are now worth just 10% of their peak value over the last five years.
Banc De Binary says there is such a high number of companies in the 90% club as the AIM market is dominated by oil and gas and mining exploration companies that will have little intrinsic value if their exploration efforts fail.
Scandal-hit Quindell has recently bounced in and out of the 90% club. The insurance sector outsourcer suffered a loss of over 93% in value from its peak following publication of a report by US analyst Gotham City Research in 2013. The shares peaked at 650p and are currently 59p, down 90%.
Quindell founder and chairman, Rob Terry, alongside two other directors, Laurence Moorse and Steve Scott, were recently ousted in an attempt to restore investor confidence. Concern was raised again when the company’s former house broker, Canaccord Genuity, withdrew its ‘buy’ recommendations on the shares.
Oren Laurent, founder of Banc De Binary, said: “The 90% club figures, alongside the recent Quindell scandal, testify to the volatile nature of shares in AIM-listed companies.”
Banc de Binary says that mining and oil and gas companies have proven popular choices with investors but the high potential linked to these sectors comes with great risk.
Banc de Binary points out that the recent fall in oil prices is likely to have a direct impact on many AIM-listed companies. As the oil price tumbles it will make the extraction of oil from harder to access reserves less and less profitable.
Examples of AIM 90% club members:
– Fastjet – The low cost African airline founded by Sir Stelios Hadji-Ioannou
– Ceres Power Holdings – a developer of next generation power cells
– Max Petroleum the oil and gas as exploration and production company focused on the Republic of Kazakhstan.
Tax breaks pulling investors towards high risk AIM companies
Oren Laurent said: “Tax breaks are now helping smaller AIM-listed companies to attract investors.
“2013 rule changes which made them eligible for inclusion in tax efficient ISAs have prompted many to explore AIM investments the dangers are often ignored.
“While they offer great growth potential, AIM companies are higher risk than companies listed on the main London Stock Exchange. Many have not been thoroughly researched.
“The smaller market capitalisation of AIM companies means a lack of liquidity in shares. They are also often working with a less diversified income base and with unproven business plans.”
Banc de Binary says that AIM investments should be the reserve of well informed investors and part of a balanced, diversified portfolio.