The Alternative Investment Market (AIM) has long been a breeding ground for innovative companies, offering investors a unique opportunity to participate in high-growth sectors. It was established in 1995 to champion smaller UK companies. However, over the past year London’s junior market has flattered to deceive.
Over one-year (to 19th December) the FTSE All-Share AIM Index (a performance aggregate of the 605 companies listed on the AIM index) was down 4.5%. By comparison the FTSE 100 index was up 5.8% over the same period (although to be fair, performance would have been better for the FTSE 100 barring a tumble during the week).
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The AIM market was not helped earlier this year by newly-arrived Chancellor of the Exchequer, Rachel Reeves halving the inheritance tax relief on shares in stocks quoted on AIM to 20%. Although not the roadside bomb it could have been, the change made the AIM market instantly less attractive, and without much better performance than other investment opportunities, the market could see funds leeching out of it.
Companies that are gaining scale and considering the transition from private-to-public are thinking long and hard about listing on AIM, and up to the end of 3Q24, the market experienced the lowest number of IPO’s since the global financial crisis in 2007/8, with just eight listings for the nine months.
However, things could be turning for AIM, as several key themes are likely to drive performance of AIM stocks next year.
Key Themes for 2025
- Technology: The technology sector, especially those focused on artificial intelligence, cybersecurity, and cleantech, is expected to continue its upward trajectory;
- Healthcare: With an aging population and increasing healthcare costs, companies developing innovative medical treatments and technologies are poised for growth;
- Sustainable Investing: Environmental, social, and governance (ESG) factors will remain crucial, with investors seeking companies that align with sustainable practices;
- Special Purpose Acquisition Companies (SPACs): SPACs have revolutionized the IPO process, and their impact on AIM is likely to continue in 2025.
Potential Top Performers
While it’s impossible to predict with absolute certainty, The Armchair Trader has noticed a few AIM-listed companies that might benefit in 2025 from the above themes.
#1. Oxford Nanopore Technologies LON:ONT
We’ve been following Oxford Nanopore for some time, and still believe that it is on the cusp of a breakthrough. The biotech firm is at the forefront of developing nanopore sequencing technology, which has the potential to revolutionise genomics research and personalised medicine. This smallcap British company is hoping, with UK Government backing, to become the go-to option for early-warning of future pandemics. We believe that with increasing demand for rapid and affordable genetic sequencing, Oxford Nanopore is well-positioned for significant growth.
#2. S4 Capital LON:SFOR
The London-based digital media agency had a tough 2024, at least to end-3Q24, where the company was performing below expectations. Chairman, Sir Martin Sorrell noted that the company was expecting a strong fourth quarter, which might pull the year out of the fire for the media agency. The company has been an early and enthusiastic adopter of AI, and it is now seeing its clients start to experiment with its proprietary AI-powered tools and expects strong growth through this channel in 2025, which should have a beneficial impact on the company’s share price.
#3. ITM Power LON:ITM
ITM Power has been a much-maligned stock for a while now, and was on the wrong-end of the short-trade market a year ago. The company has thrown all its chips in on the hydrogen revolution and was the first hydrogen-related company listed on the LSE, but has seen its share price fall by around 40% this year. The company has been labouring at the hydrogen pithead for over 20-years and has designed electrolyser systems that generate green hydrogen based on proton exchange membrane technology. Its systems use just renewable energy and water, with oxygen and water vapour the only by-products.
But to-date the hydrogen market hasn’t yet had the lift-off that was anticipated. However, 2025 promises to be a pivotal year for the low-carbon hydrogen and ammonia sectors. Despite persistent challenges – such as cost pressures, securing offtake agreements and navigating complex regulatory environments – key milestones are starting to take shape. We anticipate increased levels of activity across both sectors and a shift towards greater commercialisation and this could be good for ITM Power and other hydrogen companies. ITM has, through the development of a gigafactory in Sheffield and securing key strategic partnerships, pushed itself to the front to the queue when goodies from the hydrogen market eventually get handed out.
#4. Renalytix LON:RENX
Renalytix is a clinical-stage biotechnology company focused on developing diagnostic tests for kidney disease and combines two of our themes: healthcare and AI. Renalytix develops artificial intelligence-enabled in-vitro diagnostic solutions for clinical management kidney diseases in the United States.
The company offers KidneyIntelX, a diagnostic platform that employs an artificial intelligence-enabled algorithm that combines various data inputs, including validated blood-based biomarkers, inherited genetics, and personalized patient data from electronic health record systems to generate a unique patient risk score. Its products are used in kidney disease diagnosis and prognosis, clinical care, patient stratification for drug clinical trials, and drug target discovery.
The firm successfully completed a GBP11.8m funding round this year, with a focus on delivering scalable revenue and reducing costs and is targeting USD3.2m in revenue for the year ending June 2025 and aims to significantly lower cash burn by mid-2025. It’s had some commercial success through its KidneyintelX.dkd product, the first FDA-approved and Medicare-reimbursed prognostic test for kidney disease, which achieved full Medicare reimbursement at USD950 per test. This milestone provides coverage for over half of Renalytix’s US addressable market of 14 million diabetic kidney disease patients. It is having record sales especially with front-line doctors and is expanding its partnerships.
As chronic kidney disease becomes a major global health issue, Renalytix’s innovative diagnostic tools could be in high demand. It was an acquisition target in August this year, “from a large and well-capitalised publicly-listed strategic diagnostics company,” but the board rejected this unsolicited offer, as they believed that they had the necessary funding to stay independent, but don’t discount another offer coming in the next year.
AIM has had its problems in 2024, but it’s still a market for exciting opportunities. And it’s not just retail investors looking in, AIM companies are increasingly attracting attention from private equity shops and foreign investors, which on a short-term trading basis can offer smaller investors capital returns on currently depressed valuations. If the new government wants Britain to have a growth economy, it need look no further than the AIM market, which for 30-years has been the home of ambitious companies looking to use the LSE’s junior market as a shop-window for global growth, and next year needs to give AIM some love.
