Initial Public Offerings (IPOs) on London’s junior AIM market outperform those of firms on the main market by a “considerable margin”, according to new research.
In an analysis of 258 London market IPOs, stock screening site Stockopedia highlighted that the average AIM IPO “almost doubled over a 5 year period” compared to negative returns for firms that debuted on the UK’s main market.
The research highlighted that six months from the date of IPO onwards, AIM floated firms beat their main market competitors “over every time period thereafter”, noting that while the junior market had been boosted by some “phenomenal performers”, the overall win rate was “much higher” than anticipated.
“Comparing the opening price on the first day of trading, to our cut off point on the 15th June 2021, we found that over 58% of AIM IPOs went on to generate positive returns”, the report said.
The figures threw the disparity into sharp relief, with AIM IPOs surveyed logging a 17% return one year since listing compared to a 2.3% loss for UK main market IPOs and a 22.2% loss for international main market listings. The disparity expanded across the time frame, with AIM IPOs logging a 95% gain after five years compared to a 2.6% loss for UK main market floats and a massive 51.9% loss for international main market listings.
Healthcare and tech IPOs dominate
In terms of sector performance, the research highlighted that health and technology IPOs had “excelled over the past 5 years”, with healthcare and tech IPOs delivering an average return of 153.3% and 110.4% respectively over the period.
The best performing IPO, according to the data, was career guidance and consumer engagement platform developer Dev Clever Holdings, which since its float on the main market in January 2019 delivered returns of 1,685% as of June 15.
Avoid private equity exits in the large and mid-caps
While the junior market has proved a boom for small-cap minded investors, Stockopedia warned that based on its data set potential backers should “avoid large and mid-cap IPOs as they underperform”.
“This [underperformance] may be because private equity and venture capital use public markets as an exit route where they known there are forced buyers”, the report said.
However, despite the IPO shares being priced at 390p each, valuing the group at around GBP7.6bn, the stock tumbled on the first day of trading and has yet to recover. As of the close on July 30, the shares were valued at 330p, a 15% discount to their IPO price.