Would the Welsh economy be any more likely to prosper if companies were able to raise money through a local stock exchange that provided opportunities for entrepreneurs to tap local sources of finance and avoid the expense and red tape involved in a listing on one of the London exchanges? It is a notion that crops up regularly and was the theme of a publication by the IWA, A Strategy for the Welsh Economy by Dr John Ball of Swansea Metropolitan University, only a few years ago.
It is an idea whose time may yet come in spite of the formidable difficulties likely to be encountered. Indeed, other parts of the UK have also shown interest in finding ways of re-connecting local people keen to invest in good local businesses with entrepreneurs seeking funds in their area.
No-one should hold their breath but in the meantime how would investors fare if, instead, they merely sought to create their own portfolios of shares in local companies already listed on the main London Stock Exchange (LSE) or on its smaller sister, the Alternative Investment Market (Aim)?
To test this I have created a virtual portfolio of twelve shares and will be following these over the next year to see how investments in a selection of Welsh companies measure against the main indices. In other words would I do better or worse with a simple tracker fund investing in LSE or Aim companies or with my list of Welsh companies? Are Welsh companies performing better, worse or about the same as UK companies as a whole?
The choice of shares available for the portfolio is, sadly, not very great. There are only two large Welsh companies quoted on the main exchange, insurer Admiral and price comparison site Moneysupermarket.com. Admiral on its own is bigger than the rest of the Welsh quoted company sector put together. As a result the bulk of my selection is drawn from the smaller Aim exchange, which offers listings without the full panoply of requirements for a full LSE quote.
Balance is also a problem for the same reason but the list does have a reasonable spread across the various sectors, with even some international exposure. Apart from the big two mentioned in financial services, my twelve includes three technology companies – lighting specialist, Enfis, semiconductor services company, Pure Wafer and chipmaker, IQE. From the consumer sector I have chosen Redrow, the builder, International Greetings and Finsbury Foods, from resources, the Welsh based oil explorer, Amerisur Resources, agricultural supplies and country retailer, Wynnstay, from media Boomerang Plus and finally Welsh Industrial Investment Trust.
So in their first month to December 5th, how did my 12 nominal shares to the value of £100 each fare? During this period the three main UK indices, the FTSE100, the FT Mid Cap index and the FT Aim All Share Index, all made minor advances of less than 1 per cent – effectively ending the first month at roughly where they started despite a dip in the middle of November.
Of my share selection six, Amerisur, Admiral, International Greetings, Pure Wafer, Wynnstay and Welsh Industrial Investment Trust, increased in value, with the other six showing a decline. Despite this even balance, however, my nominal portfolio ended up £28.27 down in value at £1,171.73, and if the purchases had been made (rather than imagined) and the various commissions and charges paid, I would have lost even more.
Our one very big quoted company, Admiral, was up slightly, showing a 17p gain to 1076p in what appears to have been a relatively quiet month for the Cardiff insurer. Welsh Industrial Investment Trust rose 13 per cent to 245p but Redrow, which enjoyed a strong recovery during the middle of 2009, has slipped back again and was down a further 8 per cent over the month to 134p. It had a successful rights issue in early November and has begun buying land again for building but its fortunes are tied very much to the housing market where there is no consensus currently on what is likely to happen next year.
The real star was Aim-listed Amerisur Resources, the St. Mellons-based international oil and gas explorer, which focuses on South America. It has recently had good drilling results in Colombia and Paraguay and rose over the month by 45 per cent to 11.2p. Wynnstay has been another good performer this year. Even though it only managed a very small increase to 228p, the company, which supplies farmers with a range of goods, including feeds, as well as having its own retail outlets, is now trading at near the top of its 52 week range at 239p, up from a low point during the period of 155p. The company has been on the acquisition trail in England and the market clearly approves.
Of the other Aim-listed companies Pure Wafer, which has had a troubled time over recent years, rose nearly 20 per cent from a modest 3.75p per share to 4.5p after reporting some more positive trends for the business. It has been as low as 2p this year and as high as 10p and reported continuing losses to June 30th. IQE, however, which hit 3p earlier in the 52 week period before recovering to 20p is now at 16.72p, a drop of nearly 10 per cent on a month earlier but it now sees some stiffening of prices in its markets.
My other technology stock, Enfis, has, however, been the main disappointment of the period, losing 60 per cent of its value, with shares dropping from 53p at the beginning of November to only 21p. The Swansea high power lighting specialist has been seeking to reduce overheads to limit the outflow of funds but sees some evidence of investment by its customers in China and Europe. Television production company, Boomerang Plus, announced new contracts during the autumn with S4C and the Royal Welsh Show but this failed to prevent a 13 per cent decline in its share price to 87.15p
Shares in Cardiff cake-maker Finsbury Foods also took a tumble from 26p to 19.6p, because, it seems, the great British public, instead of indulging in comfort eating to ease its recessionary fears, has actually cut back on its cake intake or gone for less expensive options, leading to a profit decrease. International Greetings which has been restructuring itself managed an eight per cent increase in its share price, while Moneysupermarket.com remained much where it was a month earlier at 77.2p.
With only a month under review there are obviously no clear trends to report yet, though clearly conditions have not improved all-round and some companies continue to struggle. December is usually a good month for shares as investor optimism rises in the run-up to Christmas – shares are reported to have risen in 18 of the last 20 Decembers – so we shall see whether this happens again in my next report early in January – and whether it applies to Wales as well as to the indices as a whole.