In the current climate investors must recognise the threat of delisting facing certain small companies

by Dan Coatsworth

More than 200 Aim-quoted companies could be delisted in the next year if stock market conditions do not improve. Any valued at less than £2 million will find it hard to justify the annual cost of maintaining a listing, currently between £100,000 and £125,000 a year. There has already been a rise in the number of delistings as companies have gone bust, merged with rivals or decided they have a better chance of raising money as private businesses as institutional investors shun microcaps. Shareholders should check the financial stability of microcap stocks and sell any that appear to be struggling.

London Stock Exchange (LSE) figures as of 31 August show 174 companies with tradeable stocks are valued at £2 million or less. For over 100 of these, the cost of having an Aim quotation is more than 10% of their market valuation. Recruitment company 1700 (1700:AIM) was valued at £6.4 million at its flotation in January 2008. On Tuesday (9 September), it was worth just £880,000. With limited near-term prospects for the employment sector, 1700 may have little choice but to delist unless trading picks up. The same applies to fundraiser The Weather Lottery (TWL:AIM), valued at just £250,000.

Fifty five stocks are currently suspended on the LSE, 38 of which are at high risk of leaving Aim because they have found problems with the financial accounts or do not have enough money left to trade. Since 1 September, a further three companies have been suspended with serious problems.

Franchising and cleaning services group Myhome International (MYH:AIM) has gone into administration after its bank called in a loan early, which the company could not repay. Unless it can find a nominated adviser, the shares will be delisted on 10 October.

Shares in household goods group Longmead (LGM:AIM) are suspended as trading difficulties have left it short of money for working capital.

Logistics services group Business Direct (BDG:AIM) jumped 64% on 20 August to 0.575p after revealing a possible takeover.

Investors were left reeling when it said the following day a sale did not relate to the company’s share capital. Two weeks later, trading in the shares was suspended as the company could not clarify its financial position and the nomad subsequently resigned.

Shares says: It is time the bottom end of Aim was cleaned up. The downside for shareholders is finding someone to buy shares in these stocks may not be easy.