Oil and gas minnows ride investor tide to market

A number of oil and gas firms are expected to float on the junior stock market. Picture: Complimentary

A STRING of oil and gas firms is expected to float on the junior stock market in the coming months as they tap in to a growing appetite for initial public offerings (IPOs).

Accountancy firm EY’s latest report on the sector’s smaller companies shows flotation activity has already propelled business confidence to its highest level in 18 months, although the feel-good factor is so far confined to a small number of players.

Three new oil and gas companies joined the London Stock Exchange’s Alternative investment market (Aim) in the three months to the end of
September.

EY’s “oil & gas eye” report says the firms raised a combined £4.6 million of funds, suggesting market conditions were still relatively tough during the third quarter.

However, the firm’s oil and gas transactions partner in Aberdeen, Ally Rule, believes further listings are in the pipeline.

“Companies still view the broad investor base, liquidity and the access to institutional investors that a listing on Aim provides as an advantage,” he said. “There has been a discerned shift in
investor focus towards IPOs, and I would be surprised if more listings aren’t being prepared.”

Secondary fundraising among Aim-quoted oil and gas companies was also up 17 per cent on the previous quarter at £49.3m.

However, Rule cautioned that the majority of small-cap oil and gas companies have yet to experience a tangible upturn in fortunes.

“Investor interest in riskier stocks may have returned on the back of some positive news on economic growth in developed markets, but the feel-good, or perhaps the feel-less-bad, factor continues to elude a number of the sector’s smaller players,” he said.

“This is reflected in the fact the ‘eye’ has failed to register more than two consecutive quarters of growth since 2009 and the current value of the index is 3 per cent lower than it was at the start of the year.”

That is despite the fact that the index, which monitors the performance of the sector’s junior companies, posted near double-digit growth of 9.6 per cent in the latest quarter.

Rule said that junior oil and gas companies will be compelled to explore the full range of funding options and providers available, and an increased appetite for takeover activity means Aim could see as many firms depart as join.

“Equity capital market conditions for most Aim-quoted companies remain difficult five years on from the financial crisis,” he said.

“Junior companies will need to refocus their portfolios around core assets or near-term production projects. Others may look to deliver shareholder value through a formal sale process. AIM is likely to welcome some new entrants as 2013 draws to a close, but increased M&A activity means we’re just as likely to bid farewell to several existing members.”

The activity in the energy sector comes amid a wider enthusiasm for flotations following a string of high-profile listings, including Royal Mail, estate agency Foxtons, housebuilder Crest Nicholson and insurer Direct Line.

Today JQW, an e-commerce operator targeting Chinese business clients, will become the latest firm to announce intention to raise funds and seek admission to Aim.

The company is looking to raise up to £15m, with market capitalisation of around £140m. Shares are expected to start trading on 9 December.

Theme park owner Merlin Entertainments has announced its intention to float, and budget chain Poundland is reportedly working on plans for a £700m flotation for early next year.