2MQ UK Chemical Sector

04 September 2013

Table: Five Year Share Price Performances Quartile Company 5 Year Actual % 1 Porvair 134.42 Inditherm 63.16 AZ Electronic Materials 21.00 Croda International 275.04 Elementis 195.00 Hardide (27.50) 2 Scapa Group 197.44 Victrex 92.51 Johnson Matthey 74.57 Synthomer 139.38 Zotefoams 87.20 3 Iofina 187.13 Carclo 319.54 Haike Chemical (59.63) Byotrol (74.48) Alent 9.23 Plastics Capital 47.55 (78.83) 4 Plant Healthcare Oxford Advanced Surfaces (92.29) Symphony Environmental 54.84 FTSE All Share 18.88 FTSE AIM All Share (6.21)
Intelligent Analysis Limited Notes: 1 Closing share prices from 30th August 2013. 2 Share price performances for Alent and AZ Electronic Materials are for the periods from their respective IPOs. 3 Alent listed in the Main market on 18th December 2012 with a closing price of 325p. 4 Alent underperformed its benchmark index (FTSE All Share) by 0.6% 5 AZ Electronic Materials IPOd on 29th October 2010 with a closing price of 252.64p. 6 AZ Electronic Materials outperformed its benchmark index (FTSE All Share) by 4.9% since IPO

At first glance, there appears to be limited correlation between the quality of management scores and share price performances. However, on closer examination, there is a consistently stronger correlation for the Main market listed companies than for the AIM companies, which we believe is a function of market efficiency. The obvious answers that might be cited for this lack of market efficiency are market capitalisation, liquidity, and risk but we would not agree completely. The market capitalisations of the Main market listed companies are undoubtedly larger than those of AIM; 57.3% of the Main market listed companies have a market capitalisation of less than 250m compared with 94.8% for AIM (source: The London Stock Exchange, March 2012). But market capitalisation on its own does not account for the relative difference in share price performance of similar sized and rated companies on different markets, e.g., Scapa Group (AIM) and Zotefoams (Main market). Liquidity is sometimes confused by both company management and market commentators with a companys free float, i.e., the percentage of shares not in the ownership of non-active, long-term shareholders. However, it should really be defined in the context of the volume and value of shares traded annually. This is an issue for most AIM listed companies but one that can be readily resolved by stimulating investor demand for shares through increased research coverage. Finally, from our brief list of obvious factors is risk, which on its own can mean almost anything. From a companys perspective, it can relate to business, market, financial, competitive, etc. while for investors it can relate to financial markets, economic conditions, degrees of investment return, etc. Perceived risk prevents potential investors from taking positive action but access to consistently available good quality company research can overcome this

Intelligent Analysis Limited

www.intellisys.uk.com

10 of 55

2MQ UK Chemical Sector

04 September 2013

inertia. It is the lack of such company research that undermines Institutional support for the AIM market, which can be summed up as AIM companies are giving potential investors a reason not to invest.

Table: Market Efficiency Main market Perceived high liquidity + Perceived lower risk + Abundant company research = Investor activity Efficient Share Valuation
Intelligent Analysis Limited

AIM Perceived low liquidity + Perceived higher risk + Limited company research = Investor inertia Inefficient Share Valuation

Most AIM and small cap companies are ambitious and aspiring to be the next AstraZeneca, Google, etc. Therefore, it is incongruous that their adopted investor relations strategies are structured to undermine interest in their shares by minimising visibility. Moreover, those policies are actively shrinking the investor pool thereby reducing market liquidity and unnecessarily and disproportionately raising the cost of capital. In our view, AIM listed and other small cap companies should be establishing investor relations strategies that reverse the above vicious circle by actively increasing the sources of consistently good quality research coverage. Scapa Group is the exception that proves this rule because, as a former Main market listed company now on AIM, it has broad research coverage and high liquidity, which has contributed to its exceptional share price performance relative to its AIM peers.

Intelligent Analysis Limited

www.intellisys.uk.com

11 of 55

2MQ UK Chemical Sector

04 September 2013

COMPANY PERFORMANCES

Intelligent Analysis Limited

www.intellisys.uk.com

12 of 55

2MQ UK Chemical Sector

04 September 2013

Alent plc
Alent is a supplier of advanced surface treatment plating chemicals and electronics assembly materials. Overall Company Score
Score 2010

Category Performance Development Financial Strength Productivity Capital Efficiency Rates of Return Overall

2012

2011

2009

Growth Strategy
2012 Organic 2011 Organic 2010 Organic 2009 Acquisitive

Business Profile Divisional Geographic

Share Performance
Pence 400 Alent PLC Ord 400

380

380

360

360

340

340

320

320

4 2

Volume (Daily) - M's

4 2

18/12/12

Feb

Mar

Apr

May

Jun

Jul

Aug

3/9/13

www.sharescope.co.uk

Chart (c) ShareScope

Intelligent Analysis Limited

www.intellisys.uk.com

13 of 55