GB examines whether the exchange delivers.

Entrepreneurs anxious to grow their businesses or secure their financial strength in the glacial conditions of the credit crunch 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 lower costs and 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’.

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.

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’.

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’.

Size and the City

The average size of a PLUS-quoted issue has 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.

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 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.

Tough times

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’.

The market has been seeking to address complaints about illiquidity and under-regulation. Brickles talks of a ‘PLUS pool’ for large blocks of shares to be traded separately from the rest of the market, improving liquidity, and a public reprimand was recently issued from the market 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.