Best and worst AIM shares in first half of 2023

As always, there were big winners and substantial losers among the smaller companies that live on AIM. Award-winning AIM writer Andrew Hore explains what happened.

AIM is continuing its downward trend this year. The FTSE AIM ALL Share index fell 9.4% in the first half of 2023, while the FTSE 100 ended the six months 1% ahead.

This follows underperformance last year, when AIM fell more than 31%. In contrast, the FTSE 100 index rose by 0.9%. Four-fifths of the constituents of the FTSE AIM 100 index ended last year at a lower share price.

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All but one of the top performers on AIM in the first half were small companies where the share price had slumped in 2022. Most of them have not even got back to their share price at the beginning of 2022.

Stocks on the move

Zanaga Iron Ore Co Ltd (LSE:ZIOC) was 28% ahead in 2022 and 163% higher in the first half of 2023. Last year, the £52 million company completed the acquisition of a controlling shareholding in the Zanaga iron ore project from Glencore Projects in return for a 48.26% stake in the company. Glencore has exclusive marketing rights for the iron ore produced at the mine.

Nine other AIM companies worth between £1 million and £100 million more than doubled in value over the past six months. At the other end, 13 companies fell 80% or more.

It is noticeable that nearly all the worst performers on the AIM All-Share are companies that have tried, or are trying, to raise cash to keep their operations going. Many of the smaller companies have had to undertake highly discounted fundraisings, while others have not even been able to find backers for a placing.

Trading in Deepverge Ordinary Shares (LSE:DVRG) shares was suspended last month at 0.15p because it failed to raise new funds. It is selling and closing its subsidiaries and it is uncertain that debts can be paid. Advanced Oncotherapy (LSE:AVO) is another company where trading is suspended, and it is running out of cash. Pittards (LSE:PTD) is the only one of the bottom ten AIM companies that rose in 2022 prior to the slump this year. The leather products supplier is trying to raise additional cash via a placing as a condition of its new bank facility.

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Time is also running out for battery technology developer Amte Power (LSE:AMTE), despite the recent award of a government grant. The company requires a financing this month. The cash will provide more time for the company, but it needs significant funds to finance the building of a battery plant.  It is not certain that enough money can be raised, and that means that shareholders may end up with nothing. The share price ended June at 6.25p. The March 2021 placing price was 175p!

This indicates the risk of early investment in a company that will eventually have to raise substantial amounts of money and dilute early investors – if it can raise the cash. This is not a time for an AIM company to be short of funds.

The smaller companies do not have much of an effect on the performance of AIM, because the large ones have a much higher weighting in any index.

Best performers on AIM 100 in first half of 2023

Share prices of more than three-fifths of the constituents of the AIM 100 fell in the first half of 2023, but there were some major gainers.

The best-performing company in the AIM 100 is Numis Corp (LSE:NUM), one of the main nominated advisers to AIM companies. Deutsche Bank is bidding 339p a share for Numis. The share price has not been at that level since the beginning of 2022. On top of the cash bid there will be an interim dividend payment of 6p a share for the six months to March 2023, plus an additional dividend of 5p a share. The bid values the AIM nominated adviser, or Nomad, at £410 million. Numis has been hit by the weak stock market and low levels of deals and new admissions, and having a strong parent should help expand the business outside of the UK.

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Airline and tour operator Jet2 (LSE:JET2) is the largest company on AIM at about £2.5 billion. After a sharp slump in early 2020, caused by Covid, the share price has recovered but it is not back to the level it was at the beginning of 2020. Forecasts have been raised over the past year, and that has helped to fuel the recovery. Demand has been strong, and capacity is still lower than three years ago.

In May, Jet2 amended the maximum percentage of the company that can be owned by non-UK nationals from 35% to 45%, after the figure had already reached 37%. That indicates overseas buying of the shares helping to boost the share price. Some rights to fly require Jet2 to be majority UK-owned. If the new figure is breached, Jet2 could force overseas shareholders to sell down their shareholding.

Nine out of 10 of the best-performing constituents of the AIM 100 index were hit by a decline in their share price during 2022. The largest faller was kettle components and water appliances supplier Strix Group (LSE:KETL) with a 73% decline. So the 25.1% rise during 2023 goes nowhere near to fully offsetting that fall, even though recent trading statements are positive. It is a similar case for floor-coverings supplier Victoria (LSE:VCP). Both companies have relatively high borrowings and depend on buoyant consumer spending.

Source: SharePad. Prices at 30 June 2023.

Subsea equipment rental company Ashtead Technology (LSE:AT.) is the exception in the top 10. Ashtead has a history supplying subsea services to the oil and gas sector and has diversified into the fast-growing offshore wind market. The company is one of the few significant successes among new AIM admissions in the past couple of years. It joined AIM on 21 November 2021 at a placing price of 162p and had reached 382p on the 30 June 2023. A rise of 75.2% in 2022 was followed by a 21.3% gain so far this year.

The 2022 results show revenues 31% ahead at £73.1 million, including organic growth of 24%. Order levels remain strong with pricing and utilisation levels rising. That will offset inflationary pressures and the 2023 outcome is expected to be ahead of previous forecasts of pre-tax profit at £26.8 million.

The improving share price is being achieved even though there has been regular selling by directors and other original shareholders. This indicates there is demand for the shares. Most recently, private equity backer Buckthorn Partners and non-executive director Joe Connolly - a nominee of Buckthorn Partners - sold 9% of the company at 360p a share, raising £25.9 million. Both retain small stakes.

Worst performers on AIM 100 in first half of 2023

Four out of the worst 10 AIM 100 performers had risen in 2022. That includes Kistos Holdings (LSE:KIST) and i3 Energy (LSE:I3E), which benefited from the sharp increase in oil prices in 2022. WH Ireland recently lowered its fair value estimate for i3 Energy from 27p/share to 23p/share. Fellow oil and gas company Jadestone Energy Inc did rise during 2022 but fell at the end of the year due to production problems. It is the second worst performer, with the share price more than halving.

Some poor performers have fallen out of the AIM 100 in recent months, such as oil and gas explorer Pantheon Resources (LSE:PANR), where the share price has slumped 70.1% after disappointing news from Alaska exploration. It is the worst-performing AIM company still valued at more than £100 million.

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The worst performer in the AIM 100 is IQE (LSE:IQE), which has been hit by weakening demand after the share price rose in 2022 in anticipation of recovery. The share price slumped 57.2% in the first half of 2023, more than wiping out the 43.7% increase in 2022. In 2022, the semiconductor wafers manufacturer increased revenues by 9% to £167.5 million, while the loss jumped from £22.2 million to £75.4 million. That includes £68.5 million of impairment charges, up from £7.4 million the previous year.

IQE raised £30 million at 20p a share via placing and a retail offer brought in a further £1.1 million. That provided a further knock to the share price. Costs are being reduced and the cash will provide working capital and fund development spending on newer markets, such as power electronics and MicroLED display. This is a highly operationally geared business and, with the lower cost base, a sharp rise in revenues could return IQE to profit. However, that is not currently forecast for the next three years.

Source: SharePad. Prices at 30 June 2023

Other large fallers were boosted by Covid lockdowns, such as audio equipment supplier Focusrite (LSE:TUNE) and video games services provider Keywords Studios (LSE:KWS). These are two companies that used to be on heady ratings and Focusrite in particular is much more lowly rated following the share price fall. Along with marketing services provider Next 15 Group (LSE:NFG) and IP translation services supplier RWS Holdings (LSE:RWS), these are companies with strong underlying businesses that have rarely appeared so undervalued.

AIM has fallen so far that there should be plenty of these opportunities surfacing over the rest of the year.

Andrew Hore is a freelance contributor and not a direct employee of interactive investor.