News - Midlands
If you want to understand what's driving Midlands businesses on the stock market, you're better looking at events in Beijing or Nanjing than Birmingham or Nottingham.
"The market has been driven by resource stocks, which have in turn been driven by growth in India and China," says Tim Cofman, of stockbroker WH Ireland, "and their competition for resources and our manufacturing.
"We're looking at a resources bubble that is it driven by a major rising economic force and one that will continue. If you want to understand how the market is being driven, look at how businesses are trying to supply that insatiable demand and how they're reacting to the low prices at which China and India can produce."
If Cofman is right - and most pundits would agree with him - then investors would be well recommended to raise a glass of thanks towards Beijing and Delhi. In 2006 the stock market went into another year of double digit growth - the FTSE 100 up 10.7 per cent, while the FTSE 250 did even better, closing 27 per cent up on the pervious year's tally.
The overall value of shares in the Midlands, including new issues but excluding those who have quit the mark, was up more than 30 per cent, beating the market average.
However, 2006 was also a year of two markets - AIM and the senior market and two halves going in two directions.
For while the FTSE did wondrous things, the junior Alternative Investment Market (AIM) ended the year just 0.8 per cent ahead of where it had been at Christmas 2005, despite a huge number of flotations.
Many of those new AIM entrants were built around natural resources - overseas oil and gas companies looking to fulfill that Chinese economic boom.
But again the region bucked the market. The total value of shares among Midlands-based AIM companies, excluding those that exited the market, rose by 37 per cent to a total value of £31.88bn.
Similar figures for Midlands businesses on the main market were up 30 per cent to £352bn.
Steve Douglas, of Birmingham stockbroker Arden Partners - which itself floated on AIM during 2006 - says: "It was the fourth year of a bull market and with evaluation ratings really only just keeping pace with earnings growth, it's not overvalued.
"It started very strongly January to April 2006, dominated by new issues on AIM that broke every record in its 12 year history. Then, around May-June 2006, it came to a shuddering halt as interest rates started going up globally and bad news came out of the resources sector."
Martin Lord, of stockbroker Williams de Broe, agrees; "We've now had four year of double digit growth, but the valuation of shares remains modest."
Arden and his peers say that summer 2006 was the point where AIM's fortunes parted company with those of the maim market.
AIM went into a decline and began recovery only later in the year. The main market, meanwhile, was dominated by takeover activity, fuelled by cheap debt and an air of one-upmanship.
Douglas adds: "Shareholders are happy to invest in successful companies. In the second half of summer 2006 private equity guys started buying bigger and bigger. There was a lot of speculation going on around a lot of companies. One company gets taken out, who would be next?"
David Armfield, of accountant PricewaterhouseCoopers, agrees: "It has been a pretty benign market in which to prosper. You still have historically low interest rates so the cost of borrowing is low. There have not been too many casualties. There has been a strong M&A drive: stability has meant companies can make long term strategic decisions, and many of them have decided to be acquisitive. So we've seen Severn Trent spin out Biffa at a £31bn cap, while the Boots merger with Alliance has proven to be a success."
There are also indications that, with ever-tighter regulatory regime on the main market, some listed Midlands companies may wish to follow the likes of Redditch FW Thorpe and Stoke-on-Trent's Churchill China and switch down a gear by moving onto AIM.
Ifor Williams, of Brewin Dolphin Corporate Finance, says: "AIM does go in waves, however it is buoyant, so a good quality sensible product will perform. There is more regulation on the full list, but a lot of companies we have moved from a full listing to AIM will maintain their quality. The tax breaks for AIM make it easier to find investors, its better shaped for.
"The full list is still seen as the place to be for serious companies, but there is not a huge number that will go up to. In fact we have only moved one in a year to full list from AIM."
And looking ahead for 2007, most pundits - with a couple of caveats - are fairly optimistic for the fortunes of Midlands listed companies during 2007.
David Vaughan of lawyer Wragge & Co says: "I'm cautiously optimistic about how the equity markets will perform. I don't expect to see a dramatic downturn in the property market unless there's a big event that shakes investor and retail confidence.
"All the commentators think that M&A activity will be pretty strong because of stability and the hunger of venture capital and hedge funds."
Andrew Wright, head of public markets at lawyer Cobbetts, adds: "I think overall there will be fewer listings during 2007, but there will be more M&A activity as sectors consolidate. There will be more mergers acquisitions and disposals, particularly among the natural resource companies that came onto the market last year."
However, most avid stock market watchers believe that activity will not just be limited to M&As: the majority of pundits claim that the sharp decline in flotations in the second part of 2006 will be reversed, and this year will see private companies prepared to raise funds on both the main market and on AIM.
Lord says: "I think we can expect to see some of the companies that were taken private in 2002 to 2003 coming back to the market, particularly as they'll want to get in before predicted interest rate rises in 2008. I think we'll see positive returns in 2007."
Armfield adds: "There will be an appetite for flotations both among investors and companies. However, there will be a concern that we are in the latter stages of a bull market, therefore how long can it go on?
"There is a sentiment that suggests that business confidences will wane a little and interest rates will be higher, but I see no reason why there will not be a strong market for flotations in 2007."
Top of the class
If you want to understand what's driving Midlands businesses on the stock market, you're better looking at events in Beijing or Nanjing than Birmingham or Nottingham.
"The market has been driven by resource stocks, which have in turn been driven by growth in India and China," says Tim Cofman, of stockbroker WH Ireland, "and their competition for resources and our manufacturing.
"We're looking at a resources bubble that is it driven by a major rising economic force and one that will continue. If you want to understand how the market is being driven, look at how businesses are trying to supply that insatiable demand and how they're reacting to the low prices at which China and India can produce."
If Cofman is right - and most pundits would agree with him - then investors would be well recommended to raise a glass of thanks towards Beijing and Delhi. In 2006 the stock market went into another year of double digit growth - the FTSE 100 up 10.7 per cent, while the FTSE 250 did even better, closing 27 per cent up on the pervious year's tally.
The overall value of shares in the Midlands, including new issues but excluding those who have quit the mark, was up more than 30 per cent, beating the market average.
However, 2006 was also a year of two markets - AIM and the senior market and two halves going in two directions.
For while the FTSE did wondrous things, the junior Alternative Investment Market (AIM) ended the year just 0.8 per cent ahead of where it had been at Christmas 2005, despite a huge number of flotations.
Many of those new AIM entrants were built around natural resources - overseas oil and gas companies looking to fulfill that Chinese economic boom.
But again the region bucked the market. The total value of shares among Midlands-based AIM companies, excluding those that exited the market, rose by 37 per cent to a total value of £31.88bn.
Similar figures for Midlands businesses on the main market were up 30 per cent to £352bn.
Steve Douglas, of Birmingham stockbroker Arden Partners - which itself floated on AIM during 2006 - says: "It was the fourth year of a bull market and with evaluation ratings really only just keeping pace with earnings growth, it's not overvalued.
"It started very strongly January to April 2006, dominated by new issues on AIM that broke every record in its 12 year history. Then, around May-June 2006, it came to a shuddering halt as interest rates started going up globally and bad news came out of the resources sector."
Martin Lord, of stockbroker Williams de Broe, agrees; "We've now had four year of double digit growth, but the valuation of shares remains modest."
Arden and his peers say that summer 2006 was the point where AIM's fortunes parted company with those of the maim market.
AIM went into a decline and began recovery only later in the year. The main market, meanwhile, was dominated by takeover activity, fuelled by cheap debt and an air of one-upmanship.
Douglas adds: "Shareholders are happy to invest in successful companies. In the second half of summer 2006 private equity guys started buying bigger and bigger. There was a lot of speculation going on around a lot of companies. One company gets taken out, who would be next?"
David Armfield, of accountant PricewaterhouseCoopers, agrees: "It has been a pretty benign market in which to prosper. You still have historically low interest rates so the cost of borrowing is low. There have not been too many casualties. There has been a strong M&A drive: stability has meant companies can make long term strategic decisions, and many of them have decided to be acquisitive. So we've seen Severn Trent spin out Biffa at a £31bn cap, while the Boots merger with Alliance has proven to be a success."
There are also indications that, with ever-tighter regulatory regime on the main market, some listed Midlands companies may wish to follow the likes of Redditch FW Thorpe and Stoke-on-Trent's Churchill China and switch down a gear by moving onto AIM.
Ifor Williams, of Brewin Dolphin Corporate Finance, says: "AIM does go in waves, however it is buoyant, so a good quality sensible product will perform. There is more regulation on the full list, but a lot of companies we have moved from a full listing to AIM will maintain their quality. The tax breaks for AIM make it easier to find investors, its better shaped for.
"The full list is still seen as the place to be for serious companies, but there is not a huge number that will go up to. In fact we have only moved one in a year to full list from AIM."
And looking ahead for 2007, most pundits - with a couple of caveats - are fairly optimistic for the fortunes of Midlands listed companies during 2007.
David Vaughan of lawyer Wragge & Co says: "I'm cautiously optimistic about how the equity markets will perform. I don't expect to see a dramatic downturn in the property market unless there's a big event that shakes investor and retail confidence.
"All the commentators think that M&A activity will be pretty strong because of stability and the hunger of venture capital and hedge funds."
Andrew Wright, head of public markets at lawyer Cobbetts, adds: "I think overall there will be fewer listings during 2007, but there will be more M&A activity as sectors consolidate. There will be more mergers acquisitions and disposals, particularly among the natural resource companies that came onto the market last year."
However, most avid stock market watchers believe that activity will not just be limited to M&As: the majority of pundits claim that the sharp decline in flotations in the second part of 2006 will be reversed, and this year will see private companies prepared to raise funds on both the main market and on AIM.
Lord says: "I think we can expect to see some of the companies that were taken private in 2002 to 2003 coming back to the market, particularly as they'll want to get in before predicted interest rate rises in 2008. I think we'll see positive returns in 2007."
Armfield adds: "There will be an appetite for flotations both among investors and companies. However, there will be a concern that we are in the latter stages of a bull market, therefore how long can it go on?
"There is a sentiment that suggests that business confidences will wane a little and interest rates will be higher, but I see no reason why there will not be a strong market for flotations in 2007."