The City: Smart investors take AIM

Published: 18 January, 2007

Investors are becoming increasingly attracted to London's Alternative Investment Market, the exchange that many fledgling companies use to make their initial offering of shares to the public. The costs of doing so are fairly cheap compared to the main market, and the hurdles companies have to jump to achieve approval from the stock exchange are less onerous. In some senses, that should serve as a health warning to investors because AIM-listed companies can and do collapse, but so can their bigger brethren - Railtrack and Marconi, for example.

One of the great attractions of shares listed on AIM (apart from potentially being in from the start of one of the next decade's high-fliers) is that, if you hold them for two years, there is no inheritance tax to pay when you die: the chancellor gets nothing from that part of your estate. That is a major reason why, when Wandsworth brewer Young & Co simplified its share structure earlier this year, its listing was moved from the main market to AIM. The eponymous family doesn't have to worry about inheritance tax diluting their holdings.

So attractive have AIM shares become to those wanting to beat estate duties that some financial institutions have started to run collective funds based solely on them. And one of the core holdings many of the fund managers suggest is Majestic Wine, largely because of its solid growth pattern (allowing for a share split, the stock has more than quadrupled in 10 years) and potential to grow further.

Now investors of a more adventurous bent will be able to back a Napa Valley producer whose shares are coming to AIM. Cosentino Signature Wines plans to list in London by the end of November and is seeking to raise about 17m to double its capital base to some 34m. The float proceeds will help reduce the company's debt from its present $23m and permit it greater balance-sheet flexibility to pursue expansion.

All the company's wines go to the US market, including, it claims, to the White House. Last year it sold 45,000 cases, worth $7m (3.9m), under the Cosentino, CE2V Estate and Crystal Valley Cellars labels. Larry Soldinger, the chairman, says he expects sales to grow to $9m this year and $13.8m in 2006. He also forecasts gross margins rising from 65% to 75% next year.

So why not list in America? Simple, says Mr Soldinger: the regulatory costs are too high. In addition, Cosentino's small size would mean that, in the US, its shares would probably be traded over the counter rather than on a significant exchange. Other overseas producers will watch his trailblazing with interest.

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