The stocks behind the AIM market comeback

One year on since the AIM reached a nadir, smaller companies have propped up the revival.

It has been just over a year since AIM reached its low point, and since then it has gone from strength to strength. The FTSE AIM All Share index has doubled since the low during 19 March 2020. This is in sharp contrast to the FTSE 100 index, and the junior market has also done well in comparison with better-performing world markets, such as the Nasdaq.

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AIM had a good post-election period at the end of 2019 and had edged up further in the first few weeks of 2020. Having hit its peak of 975.18 on 20 February 2020, the AIM All Share fell by nearly two fifths in the subsequent month. Investor confidence returned almost as quickly as it disappeared and there has been a steady upward trend since March 2020.

The larger AIM companies have not quite performed as well as the AIM as a whole, but they are not far behind. The FTSE AIM 100 index has increased by 94% and the FTSE AIM UK 50 index is 96% ahead. In fact, document storage business Restore (LSE:RST) is the only constituent of the AIM 100 that has fallen during the period. None of the AIM 50 constituents has fallen – the worst performer is audio visual products distributor Midwich Group (LSE:MIDW), which is 6% higher.

There are 41 of the constituents of the AIM 100 with share prices that have at least doubled since the middle of March 2020.

The Nasdaq performed relatively well in the early part of 2020 and only fell by one-fifth. It has risen by 81.5% in the past 12 months, which lags AIM’s performance. However, it is 44.6% higher than at the end of 2019, whereas AIM is only 24% ahead over that period.

The German DAX index has risen by 70% over the past year, while the French CAC 40 has risen by 54%, but it is just below the level at the beginning of 2020. Although south-east Asia was hit first by Covid-19 and has generally recovered earlier, the Hang Seng index in Hong Kong has barely changed from the level at the beginning of 2020.

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The FTSE 100 had fallen by just under one third by the middle of March 2020 and has subsequently recovered by 30%. That still leaves it one eighth lower than at the beginning of 2020. Normally, larger companies are the first to decline when the market slumps, but they also tend to recover first. Last year’s market fall was different to downturns in the past. It was a much sharper fall and a faster recovery than previously.

AIM has done better because of the different mix of companies included in the index. The FTSE 100 has significant weightings for oil and gas companies, financials, airlines and leisure. AIM has high weightings for online retail, healthcare and alternative energy companies.

The healthcare sector has risen by 88%, having declined by 29% in the early part of 2020. The index had already recovered its loss by the end of May.

Healthcare companies have been given opportunities by Covid-19, such as Avacta (LSE:AVCT), which has risen nearly 1,500% over 12 months and is the best performer in the AIM 100.

But there are other companies in the sector that have been hit by the lack of normal surgery, for instance. Woundcare company Advanced Medical Solutions (LSE:AMS) is trading above its low for the past 12 months, but the share price is lower than at the start of 2020. Reduced numbers of operations meant that profit halved last year.

Covid-19 diagnostic tests supplier Novacyt (LSE:NCYT) barely scrapes into the top 50 AIM performers since the market low. That might seem surprising, but it is because the share price had already increased by 800% in the early part of 2020, which made it the best performer over that period. Novacyt is still one of the top five AIM 100 performers, though.

The energy sector fell by 43.8% in the early part of 2020. This sector includes oil and gas companies and alternative energy companies. It has subsequently risen by 157%. This reflects poor performances by many oil and gas firms - due to the weak oil price - being offset by the exceptionally good performances of a handful of alternative energy companies.

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That performance over the past year comes after the index peaked at around the end of January at one-third higher than its current level. This is due to profit-taking on the alternative energy companies. Fuel cell technology developers Ceres Power (LSE:CWR), ITM Power (LSE:ITM), Proton Motor Power Systems (LSE:PPS) and AFC Energy (LSE:AFC) have still at least trebled in price even after having fallen by up to two-fifths in two months. All these businesses are loss-making, but they have a combined market capitalisation of more than £5 billon.

Ceres is the better performer because the share price has declined by less than one-third even after the recent £181 million fundraising at 1060p a share.  Ceres may move to a premium listing in the middle of 2022.

Mining is another area that has performed strongly. The basic resources sector fell by more than one-quarter up to the low point for AIM and since then it has increased by 155%.

Greatland Gold (LSE:GGP) rose consistently during 2020, although it has fallen back during 2021. Along with Eurasia Mining (LSE:EUA) and Atalaya Mining (LSE:ATYM), Greatland has helped the sector perform strongly. There has also been demand for miners involved in resources required for batteries and alternative energy.

AIM’s retail sector benefits from a bias towards online firms. The retail sector nearly halved before turning upwards and rising by 166% over the subsequent year. Online fashion retailer ASOS (LSE:ASC) has the largest weighting in any AIM index it is included in and is the best performer in the AIM 50. Naked Wines (LSE:WINE) has benefited from greater online buying of wine and the share price has nearly trebled. 

Boohoo (LSE:BOO), which is in the AIM 100 but not eligible for the AIM 50 as it is not domiciled in the UK, has had its own troubles. Yet the share price has still nearly doubled. ASOS and boohoo account for 11.2% of the AIM 100 – Fevertree Drinks (LSE:FEVR) has the next highest weighting with 3.8%.

Media has also done well. After falling by more than two-fifths the sector increased by 168% from the low. The performance of video advertising technology group Tremor International (LSE:TRMR), which has risen by more than 600% is behind that rise. Trading has been ahead of expectations and the proposed US listing has given the share price further momentum.

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The technology sector fell by one-third in the early weeks of 2020 and then rose by 81.6% from its low. This includes digital payments company Boku (LSE:BOKU), which benefits from greater online activity, and semiconductor wafers manufacturer IQE (LSE:IQE), which has achieved record revenues and the share price has regained some of the ground lost since 2017.

It is not just the obvious sectors that have been doing well in the past year. The FTSE AIM travel and leisure sector fell by 69.1% between the end of 2019 and 19 March 2020. Since then, it has risen by 182%. That still means that the index is more than 10% below the level it was at the beginning of 2020.

Airline and tour operator Jet2 (LSE:JET2) lost four-fifths of its value up until the middle of March 2020 and since then it is one of the top three performers in the AIM 50. This is despite asking shareholders for two large cash injections since May 2020. Jet2 has raised £592 million. There is still some way to go to get back to the share price in February 2020.

The food and beverages sector has doubled in the past 12 months but that only takes it back up to around the level it was at the beginning of 2020. Mixer drinks supplier Fevertree has bounced back thanks to off-trade sales in the UK and a resilient performance internationally.

So far in 2021, AIM has risen by 2.4%, while the FTSE 100 is 3.3% ahead. Given the enormous outperformance over the longer period it is not surprising that there will be some catching up. Some AIM companies are on heady ratings so there is no surprise that there has been some profit-taking. The Nasdaq Composite is 0.7% higher this year so it continues to lag AIM’s performance.

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

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