February has been yet another very positive month for the AIM market. The AIM All Share index gained 8.6% in the month compared to the FTSE100’s pedestrian 3.4% increase. To underline the strength in the junior market, it is interesting to note that AIM only fell on 6 days in February compared to 12 days for the “Footsie” 100 index.

Not only have share prices been strong but it has seemed as if trading news and results have been more positive than of late. Even February’s drilling results from the miners and oilers gave the impression of being more positive – or is this just sentiment getting to me?

Improving Results

At the smaller end of AIM many companies have reported trading ahead of expectations in recent weeks. One example was the pipe and tubing manufacturer, Tricorn Group, which reported strong demand for its products and that margins in all three of its divisions had improved.

Another common theme I have noted in recent company results is that of trading being reported as in line with expectations DESPITE very difficult trading conditions. For example Avingtrans (covered in the March 2011 edition of AimZine here) reported very good progress in its Interim Results issued on 22 February.  In his results statement, the Chairman of Avingtrans, Roger McDowell, was even moved to quote Aldous Huxley on the subject of consistency:

"Aldous Huxley once said that "the only completely consistent people are the dead". Nevertheless, Chairmen of smaller quoted companies crave a degree of consistency on behalf of shareholders. Therefore, it is pleasing to report on a largely consistent first half, in line with market expectations. Steadily building on the improving position of last year, we continued to see the majority of our markets being reasonably resilient. This is particularly pleasing given the volatile economic backdrop we have been working against. We have built on the existing customer base and signed up important new customers - eg Goodrich - from whom we foresee substantial new business emerging. Therefore, our consistent strategic direction is producing the expected returns and we expect this to continue for the rest of the year.”

Oilers worth £billions

One reason why the AIM index has performed so well in 2012 is the strength of the Oil & Gas sector. This sector is always volatile but now the excitement around a number of these stocks is reaching “bubble” proportions – although I will not deny that some of the companies have some very promising assets.

As a measure of the forming bubble, consider that there are now 6 AIM Oil & Gas companies with a market cap in excess of £1 billion whereas nine months ago there was just one.

The largest company by market cap on AIM today is Gulf Keystone Petroleum (GKP) which is valued at a little over £3 billion. Gulf Keystone, an independent oil and gas exploration and production company focused on exploration in the Kurdistan Region of Iraq, has been enjoying some very good drilling results in 2012 which have set the share price alight, although, as the chart below shows, there has been some correction in recent days:

Michael Crockett               

"the only completely consistent people are the dead"

reaching “bubble” proportions

good drilling results have set

the share price alight

Written by Michael Crockett

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