IEX index:Forget the big players, 2006 was a year for the small fellas, or so the feeling in the market goes. Despite having a very successful year, regularly hitting record highs and gaining 16 per cent in the first 11 months, Dublin's main market, the Iseq, has attracted little new business.
Aer Lingus's entry in September was obviously a highlight but, for the main market, that was the first new listing since drinks and snacks maker C&C joined at the end of 2004 - a fact that has disappointed both Irish and overseas investors.
"For an economy that's been growing at one of the fastest rates in Europe, there has been a distinct lack of new listings," says John Sheehan, head of equity research at NCB in Dublin.
However, the Irish Enterprise Exchange (IEX), Dublin's exchange for smaller companies, has a different story to tell. Set up in April 2005 with eight members, the index added a further five companies in 2005 and, in this its first full year of operation, the number of constituent companies has risen to 23.
The capitalisation of the index has increased more than fourfold since its creation and at the end of November stood at €2.3 billion.
"There is plenty of demand for Irish stocks of all sizes," says Sheehan, adding that the introduction of new stocks to the market is particularly welcome. He hopes that some of these smaller companies will grow and migrate to the main market over time.
Stuart Draper, head of equity research at Dolmen Securities, agrees and says the IEX could be seen as a stepping stone to bigger things. For a small company looking for investor exposure, the IEX offers much easier access than a listing on the main market. While still regulated, the requirements for an IEX listing are less onerous than the main market, which can be a financial deterrent for some smaller companies.
There are no specific admission criteria except for the need to have a minimum market capitalisation of €5 million. No trading record is required.
Companies are not required to have a certain amount of their shares already in public hands and the exchange does not pre-vet admission documents. Furthermore - and one of the reasons Irish fruit company Fyffes is in the process of transferring from the main market to the IEX - companies don't have to seek shareholder approval for substantial acquisitions or disposals.
According to Brian Healy, director of regulation at the Irish Stock Exchange, the IEX is an important part of Ireland's trading regime. It was set up to serve an area of the market that was not catered for by the official list and interest in these so-called growth companies among investors has increased significantly since, he says.
This can be seen through the increase in activity on London's Alternative Investment Market (AIM), which added 432 new companies in 2006, raising a record £9.1 billion (€13.6 billion).
Criticisms that the IEX is simply a clone of AIM are not unreasonable in that the Irish index was modelled on the AIM template. Analysts however are divided as to the index's worth in its own right.
For Draper, a listing on the IEX tends to be more of an academic issue. "Irish companies listing on the AIM tend to take a sister listing on the IEX too," he says, adding that it is more about having representation in Ireland rather than the shares being actively traded here. "Most of the volume will be traded on the AIM." Others argue that smaller Irish companies are perfectly entitled to a platform from which to showcase themselves to local investors. While most brokerages can trade on either market, there is still a preference among some investors to trade in their local currency. Liquidity is a feature of the IEX as it is the AIM.
The issue of less regulation does not seem to be a concern either. "If companies were to use it as a means to change governance standards, that would not be well received," says NCB's Sheehan. "But, to the extent that it is bringing new companies to the market that wouldn't otherwise come, that is welcomed."
Out of this year's 10 new entrants, only two have lost value since their initial listings. Indeed, scaffolding and fencing group Siteserv, the index's most recent newcomer, has more than doubled in value since its initial public offering (IPO) in mid-November.
Growth is not a new word for the Irish market. Only a decade ago, some of the Iseq's key players, including Grafton, Anglo Irish Bank and IAWS, were small companies; now they feature among the larger members of the exchange.
The IEX has certainly made an impression. The day's top movers regularly come from the index and its members generate more news releases - albeit small ones - than some of the larger members of the Iseq.
With the main market dominated by several large players - the three major banks and CRH together account for more than half of the index's total share capital - movements in smaller companies are often overlooked.
If the IEX can act as a kind of nursery for companies in their growth phase, then it is doing exactly what it was set up to do. Only time will tell whether it can deliver on that promise.
