Elsewhere in this issue of Aimzine, we cover the problem that many AIM shares have had major falls in recent months and that there has been a lack of buyers in the market. We, therefore, welcome the announcement by the London Stock Exchange (LSE) of a new initiative to improve liquidity in the shares of smaller companies.

On 19th May 2008, the LSE announced the establishment of a new service to offer equity research on AIM companies and some smaller companies on the Main Market. The service will be known as PSQ Analytics – the PSQ name is derived from Paternoster Square the home of the LSE.

The thrust of the new initiative is to provide lower cost research coverage to smaller companies and hence encourage a significant increase in the number of companies that have analyst coverage.

There will be 3 providers who will produce research to an agreed template. The companies involved are:-

The last of these three, IIR Group, is itself an AIM listed company. The Chairman and CEO of IIR, Shane Smith, kindly took some time out of his busy schedule to talk to me about the new PSQ service.

The IIR Group have been involved in planning and preparation for PSQ with the LSE and their research partners for many months. There has been a lot of hard work needed to satisfy the various regulatory requirements.

The PSQ Analytics service will start in earnest in early Autumn 2008, with the LSE promoting the service to a target audience of around 1000 smaller companies on AIM and the Main Market. The service will cost approximately £10,000 per year for each company, being a much lower figure than current market offerings. It is anticipated that Companies will initially contract for a 2 year period.

Independent Research

There is always the question of bias in Analyst Research. This is particularly the case where the quoted company actually funds the research. To create greater independence, the LSE will drive marketing of PSQ such that, at the time a company signs up for PSQ, it will not know which of the 3 research providers will be allocated.

Shane Smith is confident that his analysts will be free to give honest appraisals of companies and is very enthusiastic about the future for PSQ.  It will be interesting to see in the early reports how in-depth and unbiased this research is able to be. The ‘PSQ’ research will not give Buy or Sell recommendations, but it will provide results forecasts.

Once the new research is produced it will be widely distributed, with Bloomberg and Thomson Reuters, amongst others, distributing the data. As with full research, the PSQ service will provide company updates throughout the year following earnings releases and when news, or other significant changes, impact the subject companies.

Aimzine Comment

At Aimzine, we welcome this initiative. We feel that it is difficult for investors to analyse many AIM companies and that a major increase in analyst coverage is much needed. We hope that the service is well supported. Aimzine will be tracking PSQ closely and will keep our readers informed of progress. We are pleased that the research will be free to view and will be widely publicised. We hope that all companies taking the PSQ product will carry the reports conspicuously in the Investors section of their websites.

Often, when a small company reports on trading, they will compare expected results with unpublished ‘management expectations’. In future, where a company has taken up PSQ, we would expect that trading results will be compared to published PSQ market expectations. We will be watching this space closely.

In addition to PSQ, the LSE is consulting on other measures aimed to ‘improve price formation and liquidity provision for smaller companies’. This sounds like more good news and we look forward to hearing more. One question that we have is - How much more money will investors be willing to commit to smaller companies as a result of PSQ and the other initiatives? PSQ should certainly help investors make better informed investment choices, but will investors commit more money?  One of our ambitions with Aimzine is to introduce more investors to AIM and we hope that the LSE will also be working to improve the image of AIM and to make more investors aware of this market.

IIR Group 

The PSQ Contract is an important new offering for IIR Group. They are an AIM listed company with a market capitalisation of approximately £4m. Earlier this year, IIR also launched their ‘Research Oracle’, a new free-to-view equity research portal, providing institutional quality research on over 400 global companies. Anyone can access IIR’s research reports at www.researchoracle.com. 

The full year results for IIR Group for the year to 29th February 2008 are due to be published shortly. However, the impact of any PSQ business will not be seen until the second half of the current year and into 2009. We are looking forward to producing an in depth report on the IIR Group in Aimzine later this year.  

Written by Michael Crockett, Aimzine

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  There is always the question of bias

  in Analyst Research.

This is particularly the case where   the quoted company actually funds the research.