AIM shares lifted by ISA buying

Well, it has been a few weeks since UK investors could put AIM shares in their tax free ISA's and it looks like this has provided a lift for AIM companies.

Aug 9 (Reuters) - London's beleaguered junior stock market is on track for its best weekly volumes in two months, fuelled by rule changes that prompted investors to snap up stocks, particularly in the beaten-down basic resources sector.

The lurch higher in volumes on AIM, a sub-market of the London Stock Exchange, followed implementation on Monday of a government plan to let people invest in small firms while avoiding tax to help drive economic recovery.

http://uk.reuters.com/article/2013/08/09/europe-stocks-aim-idUKL6N0G92IP20130809

That's a few weeks ago, but anyone following AIM shares cannot help but have noticed that the price on many seems to be up while in general the main market has been going through a will it, won't it, finally correct this summer mood.

In the last month the FTSE AIM all share is up over 4%, compared to -2.7% for the FTSE100 and  + 0.36% for the FTSE250.  Certainly some of the shares that I follow, which tend to be the more liquid AIM companies, do seem to have found a flurry of buying that has resulted in higher prices. This shouldn't be a one way ticket though as these shares still offer more volatility and can surprise big time if they announce something the market doesn't like.

William Hill, Ladbrokes and 32Red, where next?

It's been a while since I looked at the UK gambling sector (for anyone interested in previous posts click on the labels below) and it seems to be a sector that continues to recover, although some companies appear to be hotter and more in favour than others. I came across this analysis today that is worth a read and it does save me the time of going into the fundamentals.

http://bulmerinvestments.com/betting-on-gamblers/

It covers William Hill, Ladbrokes and AIM tiddler 32Red, which was flagged up here some time ago as one of the few potential smaller company takeover targets left in the sector. Naked Trader Robbie Burns seems to have bought it with a view to holding it in the hope of a takeover at some stage.

These three can actually be compared to a three horse race, William Hill being the class of the field, Ladbrokes, the underachiever who promised so much but has failed to deliver and 32Red a complete outsider with bags of potential. Bookies would probably have William Hill as the odds on favorite, with Ladbrokes and 32Red vying for some long shot money.

William Hill's recovery in the last couple of years seems to go on and on. The share price is now heading towards 500p and there is a lot of good news and expectation in that price going forward. They are no longer cheap and it would be easy to imagine a bad set of results hitting the share price hard, but so far the company has delivered.

Ladbrokes is the opposite.  They have everything to prove and will hope that their deal with Playtech leads to an improved bottom line from their online offering. If they are finally putting things right then compared to William Hill they are cheap. The article above makes a case for the upside if Ladbrokes has finally got its act together.

32Red has the attraction of perhaps being an eventual takeover bid from one of the bigger players. In the meantime it is a decent company in its own right and from next Monday as an AIM share it can be put in an ISA. It's more of a gamble than the other two, but if it attracts the interest of a bigger player it won't be sold for its current forward P/E of around 10.

AIM shares in ISA's from 5th August

The date has finally been confirmed when AIM shares can be bought in UK tax free ISA's.

The government has confirmed that risky smaller shares will be allowed in stocks and shares ISAs from 5 August.

From August investors will be able to invest in shares listed on non-traditional stock exchanges, including the Alternative Investment Market (AIM) and lesser-known ICAP Securities and Derivatives Exchange (ISDX).

Investors will also be able to hold shares listed on alternative European stock exchanges.

http://www.citywire.co.uk/money/aim-shares-to-be-allowed-in-isas-from-5-august/a692123

Perhaps the key word here is "risky".  This has both its good and bad side (AIM shares in ISA'S, the dark side and buyer beware) so it's important to understand the level of risk, especially with AIM regulation being so weak.

AIM shares become ISA eligible from this autumn

News today confirmed that UK listed companies on AIM can be bought for tax free share ISA's from this autumn.

"Over 1,000 companies listed on the Alternative Investment Market (Aim) will now be eligible for direct Isa investment," the Treasury said. "The changes will provide savers with a tax-efficient way to hold shares traded on SME [small and medium-sized companies] markets."

http://www.telegraph.co.uk/finance/personalfinance/investing/isas/10153431/Birth-of-the-IHT-free-Isa-as-ban-on-Aim-shares-is-lifted.html

 

32Red - Final Results

32Red was first mentioned here when the share price was around 43-44p, since then it has been a steady riser to around 57p on the expectation that it would probably deliver good results in its final report. Well today we got those good results.

Commenting on the results Ed Ware, Chief Executive Officer, said:

"The Company has enjoyed another year of considerable progress thanks to the focus and drive of the 32Red team. Not only have we delivered our third successive year of record results in 2012, but we have also successfully launched the 32Red brand in the newly regulated Italian market. Our strategy of increased investment in marketing is delivering strong levels of new player recruitment.

"This year has started strongly and we are confident of further progress in 2013, both financially and operationally, as we continue to grow the 32Red brand in regulated markets"

http://www.digitallook.com/news/rns/20774871-134513/TTR-Final_Results_html

Certainly looks like a decent growth story in the sector and while the fundamentals now look a little stretched from a few months ago, the added attraction here is that it may eventually attract takeover attention. The numbers still look pretty good though.

The gambling sector is not everyone's idea of a good investment, but for those who don't object on morality grounds, 32Red looks a good bet. As always DYOR.

Update:

Just read that Naked Trader Robbie Burns is a fan of this company, he mentions it in his latest update and also talks about how nice it would be if only it could be put into an ISA. As an AIM stock the Government is still in consultation mode on this change and yesterday's budget made no reference to anything happening this year.

For example just recently as those who came to the last two seminars know I was keen on 32 Red (TTR) - results are good but mainly I would hope there is a good chance of it getting bought out by one of the main bookmakers.

I bought them up mainly for my pension as AIM stocks are allowed in there and got a nice lot at 41 and at 45, and a few more last week.

However as they aren't very liquid IG wouldn't let me have many although lucky for me spreadex did and I built a nice stake with them.

But.. if I could have put them in an ISA I would already be in a very nice tax free profit. So just one example this new freedom to put AIM into ISAs will give me. It reports tomorrow and it could be a down day on a sell on the news thing but I'd be tempted to buy more on any weakness.

http://www.nakedtrader.co.uk/

AIM market and ISA's, what effect will it have on spreads?

At the last budget a mention was made that consideration was being given to allowing AIM listed shares to be allowed into ISA's (UK tax free individual savings accounts). Currently most AIM shares are not eligible as AIM does not qualify as it is not listed as a "recognised stock exchange". A few that are also listed on a recognised exchange overseas do qualify, but most don't. It is hoped that after the consultation period AIM stocks will be allowed into ISA's, if not from this year than in 2014.

One question that this will raise is the issue of the spread on AIM stocks. Smaller companies, especially those listed on AIM, can have the most ridiculous spreads, 5-10% not being uncommon and often more, which can be quite off-putting especially for smaller investors. One of the main reasons given for these wide spreads is the lack of a market, lack of liquidity.

Unlike the FTSE 100, which uses an order book to create a marketplace where buyers and sellers are matched up depending on the price they are bidding or offering, smaller companies rely upon market makers. Market makers do exactly as their name suggests; they make a market for smaller company shares. Unlike FTSE 100 companies, smaller companies attract very few buyers and sellers and thus need an artificial stimulus to enable investors to buy and sell shares. Market makers are firms which provide this service and there are normally a handful of them per listed company, with the investor being matched up with the best price available.

Market makers do not only make markets, they also make money. They do this by charging buyers a higher price than they pay sellers; this difference is called the spread. For bigger companies the spread is very small (for example the spread on Vodafone is around 0.1%) but since smaller companies attract minimal interest and trading activity, the spread needs to be very, very wide in order for market makers to make a nice little earner. Indeed double digit spreads are par for the course, which means you need the share price to increase by 10%+ just to break even

http://citywire.co.uk/money/smart-investor-scary-facts-about-smaller-companies/a462550

So, one of the main arguments for the wide spreads is this lack of investor and trader interest. In theory, adding AIM stocks to ISA's should potentially lead to greater interest from investors and therefore the excuse for such wide spreads will be difficult to justify, although one suspects that those companies with a small number of shares in issue may find the spreads remain wider. It will be interesting to see if and when AIM stocks are included if it has any effect on the spread.

Links:

Recognised stock exchanges http://www.hmrc.gov.uk/fid/rse.htm

AIM stocks in ISA's from next year?

For UK investors perhaps one of the best things to come out of today's Autumn statement is that from next year AIM stocks may be allowed into ISA's. I say may because while the Twittersphere was saying that they would be allowed from 2014, it was clear that many hadn't read or heard what Chancellor Osborne actually said, so here it is.

And we will consult on allowing investment in SME equity markets like AIM to be held directly in stocks and shares ISAs, to encourage investment in growing businesses.

http://www.telegraph.co.uk/finance/budget/9724128/Autumn-Statement-2012-the-full-speech.html

So, it actually says that he will consult about allowing AIM stocks to be held in ISA's. Chances are that it may well happen, but consult means what it says, they could decide against it - after consultation.

 

Private investors desert the market, a good contrarian sign?

Capita Registrars reported yesterday that private investors in the UK dumped £1 billion of shares between March and May this year, the largest amount of net selling in five years and bigger than the summer of crisis hit in 2008.  Even worse for the investment industry this happened at a time when buying tends to go up as investors pile money into their annual tax free ISA allowance.

Charles Cryer, chief executive of Capita Registrars, says at the beginning of the year, investors were optimistic that the economy had turned a corner. ‘This encouraged private shareholders very cautiously to add to their holdings,’ he says. 

‘It seems their caution was justified as the market rally faded, and the economy sank back into recession. The eurozone crisis has now reached another critical phase and hopes for the global economy have been dampened. Private investors have reacted by selling shares in large volumes,’ he says.

On the plus side, dividends have been up, 22% in the first quarter of the year compared to 2011, Vodafone being one of the big payers.

So, optimism seems to be fading on the back of more doom and gloom coming out of Europe and a mix of not so good economic figures worldwide.  In the meantime markets just might have priced this in for now as the short term moving averages in my previous post show more bullish tendencies.  The market is expecting more reflationary measures to be taken in the US, UK and Europe.  It may not happen quickly, but it will probably happen and when it does the market will like it.

Sources

http://www.moneyobserver.com

http://www.ftadviser.com/2012/07/02/investments