Risk & reward

PLUS-quoted continues to attract entrepreneurial ventures seeking additional finance and a higher profile. Robert Tyerman examines whether the exchange delivers

PLUS-quoted continues to attract entrepreneurial ventures seeking additional finance and a higher profile. Robert Tyerman examines whether the exchange delivers

Entrepreneurs anxious to grow their businesses or secure their financial strength in the glacial conditions of the credit crunch and recession should spare a thought for the PLUS-quoted share market.

While the Alternative Investment Market (AIM), the bruised junior branch of the London Stock Exchange, is suffering an exit of companies, the much smaller PLUS-quoted is holding its own on a modest scale and even attracting recruits from AIM.

Most of the recent market entrants highlight relative cost and comparatively lighter regulation as among their reasons for tapping PLUS. Several cite the desirability of a trading platform to put a value on their businesses, and give them credibility in the City.

Nottingham University’s Professor Lindy Durrant, chief executive officer of recent PLUS recruit Scancell Holdings, a cancer vaccine developer, explains the appeal for a high-risk venture such as her own. ‘We’ve told investors it will take three years and you’ll either make a tenfold gain or nothing.’

Grist to the mill
Advisers suggest companies’ founders and original backers can hold on to more of their original stakes on more equitable terms using PLUS than by taking alternative routes, such as accepting cash from a venture capital trust (VCT) – an investment vehicle for early-stage companies. In fact, companies often raise money privately, ahead of, but in expectation of, an introduction onto PLUS. In a potentially significant new development, some of the companies it trades are now thinking of using their PLUS-quoted paper for corporate deals.

Scancell raised £6 million from a group of private individuals, business angels and VCTs assembled by investor network London Capital Finance. It came to PLUS-quoted for £1.5 million at 60p a share in September. ‘We are researching into novel vaccines for melanoma and need [funding] to show how the work is progressing,’ says Durrant.

For the latest fund-raising, the VCTs ‘only wanted to take preference shares to dilute the stakes of our other backers. Going to PLUS instead kept everyone on the same footing’.

Eclectic bunch
Other recent entrants to this predominantly early-stage market vary widely in size and activity. They range from Dubai-headquartered and Jersey-domiciled TradeLabs, with proprietary algorithmic software for futures trading, big ambitions and – for PLUS – a hefty £40 million market tag, to perfume investment concern Secora, which has moved from AIM with a profit-sharing and royalty stake in Billy Elliot The Musical, at a more modest market value of £455,000.

Niraj Goel, who runs TradeLabs, which is mostly backed by Asian and Middle Eastern investors, declares: ‘We are looking to use our PLUS quote for deals’. The company, which raised £6 million privately ahead of its launch at prices ranging from 3p to 20p, went to 23p after floating and, says Goel, is ‘considering a European subsidiary and looking at an AIM takeover target, which would leave us as the holding company’.

Will Hirons, formerly of rail engineering group Jarvis and now head of innovative PLUS-quoted covert tracking concern Sure-Track, says the Kenilworth-based company is poised to move on an acquisition, which would ‘double our business’, using its PLUS paper, an almost unprecedented move.

In the queue, hoping to swell the ranks of PLUS quoted’s 214 traded companies is New Zealand entrepreneur Nigel Birch. Advised by Orange Corporate Finance, he has been planning to raise £1.2 million and establish a £3.25 million market value for Semantris, a company backed by seasoned serial investor Bob Morton, which boasts an exclusive technology for secure and confidential electronic document delivery over public networks.

Big agenda
PLUS-quoted began life in the mid-1990s as Ofex, an informal share market founded and operated by share dealer John Jenkins. It is now one part of PLUS Markets, a Recognised Investment Exchange operated by AIM-quoted PLUS Markets Group, which also offers rival share trading platforms to AIM and several tiers of the full London Stock Exchange.

Recognised Exchange status and a system of some 70 vetted corporate advisers, including stockbrokers, lawyers and accountants, to steer companies joining the market have increased its City credibility. They have helped PLUS-quoted, guided by PLUS Markets Group’s vigorous and ambitious chief executive Simon Brickles, win greater acceptance among investment institutions.

The chief executive is determinedly optimistic about the exchange’s future. Contrasting December’s ten per cent fall in London Stock Exchange volumes with a doubling in volumes across the different PLUS markets, he claims ‘a lot more AIM companies are looking to come to PLUS-quoted’.

Brickles suggests planned new facilities, including a ‘PLUS pool’ for large blocks of shares to be traded separately from the rest of the market will, this year, attract larger AIM companies to follow their smaller brethren in making the switch. As for questions about liquidity, he acknowledges that ‘it varies from company to company. Some companies don’t make the commitment to investor relations that they should and some don’t do enough to ensure a free flow of shares to the market’.

With these developments has come a change in the type of company likely to find an initial welcome on PLUS and a fruitful aftermarket. Arguing that PLUS ‘gives us a little bit of credibility’, Hirons of Sure-Track maintains ‘it is now virtually impossible to float a start-up on PLUS: you can’t just have a good story any more’.

The average size of a PLUS-quoted issue has also risen. ‘PLUS is from three to five times Dragons’ Den size [of project],’ suggests Frank Lucas of investment adviser Loeb Aron, which brought entrepreneur Abby Hardoun’s web hosting specialist Daily Internet to PLUS last year and advised on the £10 million reverse acquisition by controversial share tipster Tom Winnifrith’s Rivington Street Holdings (another PLUS corporate adviser) of Commodity Watch.

Lucas contends: ‘PLUS Markets offers the most competitive platform for trading equities in companies with market capitalisations of below £25 million.’ AIM admission fees range from £2,931.75 to £66,250 for companies valued from below £10 million to above £250 million, while PLUS charges £6,750 for admission (or £10,000 for an international company), with higher fees for investment vehicles (shells), AIM companies switching, and no less than £27,500 for companies joining by an introduction.

AIM’s annual fee is £4,750 across the board, while PLUS annual fees range from £5,100 for companies valued at up to £3 million, to £8,250 from there up to £10 million and £8,700 above the £10 million mark, with international companies charged a flat £10,500 a year. PLUS scores well on costs relative to AIM on professional fees and commissions.

Lucas says Loeb Aron did the Rivington deal for £175,000 and usually charges companies between £6,000 and £15,000. ‘We also put money into all our clients,’ he explains, adding that Loeb Aron fully underwrote one £700,000 issue in 2007 and directly invested £300,000 into it.

He suggests all-in annual costs on PLUS work out at around £50,000, against £200,000 on AIM. Barry Hocken of PLUS adviser St Helen’s Capital, which handled the TradeLabs float, says he listed that company for ‘less than £100,000’ and cites annual costs on PLUS of £30,000, against £100,000 on AIM. Durrant at Scancell says the total cost of raising £1.5 million on PLUS was £200,000 and suggests AIM would have cost more than twice that figure.

Early days

PLUS-quoted companies raised a fairly modest £67.5 million in new issues in 2008, although this compares favourably with £41 million in 2007. Among the 40 new entrants were Beijing-based Sunrise Biotech Holdings, which produces tea, herbal remedies and animal fodder from mulberry trees grown near the Chinese capital; Geo Genesis, which advises and backs Chinese ventures, and Arizona-based twin-seat helicopter designer Pegasus Helicopters, headed by aerospace industry veteran Frank Zummo.

PLUS-quoted, whose combined market value is no more than £2 billion, certainly does not offer immunity from falling share prices. The market, whose counters soared in the dotcom bubble of a decade ago, is overall well down from its peak and, as ever, shares outside a favoured few can hardly trade.

Market makers, including pre-eminent Winterflood Securities (owned by investment group Close Brothers, itself a significant PLUS Markets Group shareholder), KBC Peel Hunt and others, frequently come in for criticism over wide spreads. At TradeLabs, Goel rails at ‘incompetent brokers and greedy market makers’ for imposing a 15 per cent spread in the company’s shares.

Mark Smith, boss of PLUS-quoted Quercus Publishing, whose recently published novel Girl Who Played with Fire has won both critical acclaim and sales, says PLUS provided ‘a good experience’ since the company joined in 2006, but the last 12 months have been ‘very frustrating’. ‘Last year, the market makers slashed all PLUS prices, some by as much as 85 per cent.’

As a result, ‘our market capitalisation bears no relation to our value’ and the company’s option scheme for staff is ‘much less motivating’. Quite rightly, Smith points out that liquidity is no better on other markets for smaller companies, but comments: ‘If it stays like this, I’d consider losing the quote’.

ATI Oil, a spin-off from AIM-quoted Northern Petroleum with interesting onshore and offshore oil and gas projects in Italy and the Adriatic Sea, has lost 60 per cent of its value since joining PLUS four years ago, laments frustrated finance director Chris Foss.

‘We thought it would be a stepping stone for an AIM move in 2008,’ he comments, but now the company, which wants ‘several million pounds’ to develop its more exciting interests, is having to consider alternatives such as asset trading or bringing in a partner.

At Sure-Track, Hirons does not appear daunted in his paper takeover project by the fact that the company’s shares, floated in 2007 at 3.25p, were priced at only 2p in a small recent placing.

Fluid situation
Critics say regulation still leaves something to be desired, citing recent confusion at entrepreneurial engineering newcomer Fluid Leader, and complaints about illiquidity and wide spreads between buying selling prices of PLUS shares persist. But the market has, at least, been seeking to address these issues and recently issued a public reprimand to one of its most active issuers, Atlantic Law, over a technical rule infringement.

A market with the range of PLUS-quoted, which now trades EDF Nuclear Power Notes with BNP Paribas, JPMorgan, Cazenove and Merrill Lynch (now owned by Bank of America) as market makers, will always provide a wide mixture of risks and rewards for companies tapping the market and investors alike. But, with the right proposition and sound advice, you could find it meets your company’s needs.

Nick Britton

Nick Britton

Nick was the Managing Editor for growthbusiness.co.uk when it was owned by Vitesse Media, before moving on to become Head of Investment Group and Editor at What Investment and thence to Head of Intermediary...

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