During the e-steria since the turn of the year, a rather unusual thing hasbeen happening at one of London’s lesser-known stock exchanges, Ofex.
Founded in 1995 by John Jenkins of market maker JP Jenkins, Ofex was originally seen as a way of trading in companies which were too small for a full market listing, or had only a few shares available for trading – that is, companies which could not meet the requirements of the London Stock Exchange, or even AIM. Jenkins confirms that these companies can be risky, but with the world’s more established markets currently so volatile, suddenly Ofex does not look such a huge gamble anymore.
That certainly seems to be the view of investors who last month produced over 20,000 trades. What is remarkable about this figure is that December 1998 saw just 895 deals. So where is the added interest coming from – the explosion of e-traders and retail investors, or have the institutional investors begun to take an interest?
“The re-evaluation of the small cap market which has been going on for a year to 18 months – we’re talking about AIM, the Footsie 350 – has meant people are looking for growth which they are not getting from the bigger stocks. But we also believe there is a realisation that there is information on the Ofex stocks. Our web-site, for example, has been taking over 20 million hits a month, and investors can follow our market just as well as any other market. So, although the rise in interest in all the new tech stocks has had an impact, we believe that the supply of information is vital.”
Despite this, Jenkins is keen to stress that Ofex should be seen as a trading facility rather than a stock exchange. “One of the problems is that some people view us as another exchange, and we have found it difficult to live up to expectations which we do not yet aspire to.”
There have been criticism that there is no electronic trading. But Jenkins feels it could be detrimental. “One problem is liquidity, and electronic trading could cause problems with orders just sitting there rotting. Also, having an active market maker in there can help liquidity. What we have done, however, is plan for a new system over the summer through which brokers can deal with us directly electronically, and not have to telephone orders,” he says.
Although institutional investors seem rather coy about revealing their exposure, there is little doubt that they must be behind some of the funds that have been raised, particularly by companies which have moved to other listings. “Nomura have just helped one of our clients raise a substantial amount of money: Nettec who have just gone onto AIM raised £60m, another raised £25m and you can only do that with institutional support,” affirms Jenkins. “Scottish Value are coming up with an Ofex fund in the next few weeks, and others who cannot invest directly will be able to invest through that fund.”
The attractions for companies and start-ups seeking funds is obvious however. With listing costs a fraction of those on other exchanges, £20,000 will get you on board, tech start-ups are heading the queue to join. With 200 members already, around 40 other companies are waiting to join. This certainly reflects a buoyant exchange, and is attracting investors, especially those still interested in new dot.coms who are particularly keen on the low-entry costs.
Although some of the names will be unfamiliar, some are not; nor are all the stocks small. The biggest is Turbo Genset a power generator valued at £700m, number two in terms of capitalisation is the household name Weetabix.
Football giants Arsenal and Rangers are also listed, and the latter has recently announced its intention to fully float. Those are the success stories, but there have been flops, notably Digital IT.
Dan Willmott at Daniel Stewert, a specialist which has brought a number of hi-tech firms to Ofex says institutional investors have come to the market as it has matured. “They have seen other people making money, and companies moving onto other listings such as AIM. For a start up, with no track record, however, what is the difference between AIM and Ofex? The internet revolution has definitely helped, but through actively promoting the market over the past two years, we have persuaded the institutions to get involved.”
Many observers feel that Ofex is now carving a niche, although high risk will grow in importance. Which makes Jenkins plans to beat the LSE and Liffe to a market listing worth watching. Kevin Hall