Amid the LSE’s listings drought, could its scrappier little brother AIM deliver?
With London in dire need of a listings revival, the entrepreneurial spirit facilitated by AIM could deliver, writes Keith Boyfield
The AIM market, along with its big brother, the London Stock Exchange (LSE), struggled to attract new entrants in 2023. A perceived lack of liquidity, attributable in large part to the withdrawal of institutional investors, such as pension funds, resulted in London losing business to rival exchanges, notably New York. All told, IPOs on the LSE raised £953m last year – that’s 40 per cent down on the £1.6bn generated in 2022.
EY highlights the fact there were only ten new listing on AIM last year as soaring interest rates, political upheavals worldwide and tighter trade regulation curbed investors’ enthusiasm for new offerings on London’s junior market. This should be seen as a crucial alarm signal about the health of the UK equity market. After all, AIM was established to fund fast growing new businesses exploiting new technological advances.
The UK is criticised for its record of low productivity. In this context, the difficulties associated with raising funding for profitable new initiatives represents yet another serious blow to Britain’s quest to compete with the world’s best. It is therefore interesting to scrutinise why a new start-up, Energy Pathways, is bucking this dismal trend.
The company joined the AIM market in December, raising £2m in equity funding for its initiative focused on exploiting natural gas reserves below the Irish Sea. Abundant supplies of gas in what is dubbed the Marram gas field offer an array of attractions ranging from a rate of return of up to 70 per cent as well as significant environmental prizes.
Energy Pathways’s CEO, the experienced industry veteran Ben Clube, an Australian, is confident that AIM investors can help provide the necessary equity funding for the company to realise its ambitious goals.
He points out that gas fields such as Marram can plug an emerging gap in the UK’s energy needs. While overall investment is targeted on renewables and nuclear energy these projects involve long lead times before they generate any energy, particularly in the case of nuclear power.
Tapping gas from fields such as Marram will provide Britain with much needed natural gas in the shorter term when alternative supplies, notably LNG from Qatar, face mounting logistical challenges associated with the worsening conflict in Yemen. The ongoing military feud between Russia and Ukraine adds further political risk to Britain’s need to import gas to meet its energy requirements.
Furthermore, exploiting our own domestic gas supplies offers valuable environmental benefits. Clube points out that – in terms of the greenhouse gas impact – the gas Energy Pathways plans to supply from its offshore field is way below the figure recorded for LNG imported from countries such as Qatar. Indeed, the estimate of greenhouse gas emissions intensity is quite compelling: whereas imported LNG racks up a score of 80 kgCO2/boe (barrel of oil equivalent), the gas to be supplied by Energy Pathways from the Irish Sea would only register 4 to 6 kgCO2/boe.
Following its successful initial IPO, Energy Pathways is looking to raise additional funding on the AIM market once a final investment decision has been taken later this year on whether to push ahead with the project. The company has so far faced no significant difficulties in gaining the appropriate regulatory approval for its development plans from the relevant agencies, notably the Offshore Petroleum Regulator for Environment and Decommissioning.
Certainly, this kind of innovative initiative, which also offers attractive gas storage potential once the field has been fully exploited, is precisely the type of entrepreneurial scheme AIM was set up to facilitate. Energy Pathways’ future success in achieving its goals may well prove a litmus test on how well AIM can deliver on its raison d’etre.