Many London-listed small businesses would attract higher valuations elsewhere, says boss of AIM-listed Fintel – but it still has its advantages

Many small companies listed in London would attract higher value if their shares traded elsewhere, said the boss of a financial technology firm AIM-All Share.

London’s attractiveness as a destination to list a company has come under pressure in recent years, with detractors citing undervaluation, poor performance and weak liquidity.

The impact was that London was frowned upon by major companies seeking to go public, such as the semiconductor company ARM, companies being picked up by private equity, and groups moving their listing to rival markets or delisting altogether.

Stock prices on the London Stock Exchange have fallen by a third in the first six months of 2023.

However, bosses need to weigh the potential disappointment with their company’s share prices against the potential benefits of the UK market, such as the ability to easily raise cash if needed.

Matt Timmins, co-chief executive of Fintel, which only listed in London’s junior market five years ago, told This is Money: ‘As a relatively small capitalization company it is quite difficult to demonstrate your value to the market.

“Especially at a time like today when we’re seeing redemptions in terms of small-cap stocks.”

The FTSE AIM 100 – a group of the market’s 100 small businesses – is down 21.2 percent in one year and nearly 40 percent in five years.

The broader FTSE AIM All Share index, which consists of companies with an average market capitalization of around £110m, is down 15.2% and 31.3% in one and five years respectively.

Meanwhile, the giants of the FTSE 100 are up 2.8% in a year but are down 3.3% in five years, still reflecting underperformance against international peers.

Fintel’s share price has been volatile over the past 12 months

Timmins said, “Like us, there are many undervalued small-cap companies that, if they were privately owned or quoted elsewhere in another market, would be valued much higher than they are today.

“You tend to find that with a lot of small caps the liquidity just isn’t there, with very low average daily trading volumes.

Many small caps are still largely owned by institutions rather than private investors. So you don’t have much movement in the stock from day to day.

“And when institutions make redemptions, it is difficult to get a grip on the upward movement of the share price.”

Fintel Shares are up about 30 percent since listing in 2018, but are down about 1.5 percent since the start of the year to 207p.

Timmins added: “We did our own calculations and we had other institutions do that [discounted cash flow] and financial ratio analysis of the company.

“And we think the company should act much more positively than it is.”

However, Timmins admitted there are upsides to being listed as a small London company, with Fintel raising the cash for the £74.3m acquisition of financial information and rating firm Defaqto in just three days in 2019.

He added: ‘As a private company it would have been incredibly difficult for us to make that deal.

“You have to weigh up the positives and the negatives when looking at a publicly traded company.”

Fintel supports retail financial service providers, such as financial advisors and asset managers, with products to make the market work more efficiently and to tackle regulatory pressure.

Acquisitions and investments are an important part of Fintel’s future growth strategy, with the launch of its Labs unit, which is designed to take stakes in small fintech companies, support them and eventually fully acquire them once they reach maturity.

Labs’ first deal was closed in March this year, with the group taking a 25 per cent stake in Plannr for £1 million. The fintech minnow provides specialized client relationship management capabilities for financial advisors, planners and asset managers.

Timmins said, “What we’re seeing now for the first time is new entrants into the market with new pieces of fintech being built and developed in a much more iterative way. Very often, like for example Plannr, they are built from scratch with a cohort of users.

“What they need is some investment and some help with things like distribution, which is why they need an investment partner more than someone coming right in and taking over.”

Fintel is currently in “material talks” with 11 other small fintech companies, which could soon join the Labs platform.

Timmins added, “There is an internal demand when a company stops being a Labs company and becomes a Fintel company.

“While the companies are in Labs, we hold a minority stake and invest in them. Those companies will eventually graduate from Labs and become a standalone core company within Fintel alongside Defaqto and [regulatory support business] Simply biz. And then you see the impact on P&L.’

Labs companies will eventually ‘graduate’ to become major Fintel business units such as SimplyBiz and Defaqto