The challenges – and opportunities – for UK markets in 2025
“…Over almost 30 years, #AIM has supported more than 4,000 companies to raise nearly £135bn in equity capital, enabling pioneering businesses to fund innovation, create jobs and drive growth. AIM is an essential alternative for growth companies that feel they are not ready for the main market…”
AIM stocks to watch in 2025: European Green Transition, Helix Exploration and Pulsar Helium
There’s no denying it: London’s markets have been overshadowed in the past few years by the runaway success of the S&P 500, prompting a thousand negative commentaries and a rolling programme of radical reform by City regulators.
But the gloom has been overplayed. UK markets continue to attract new entrants that have performed strongly, including Rosebank, Raspberry Pi and Selkirk on the Main Market, and AIM’s European Green Transition, Helix Exploration and Pulsar Helium. The easy assumption that London’s exchanges cannot compete with the US in terms of valuation and liquidity is a partial truth.
A closer look at US and UK valuations and liquidity
Certainly, the valuation gap between the UK and US markets has grown in the past few years. The S&P 500’s current 28 times price-to-earnings ratio is roughly twice that of the FTSE 100. But the picture changes when the distorting effect of the US mega caps is taken into account. As London Stock Exchange Group CEO David Schwimmer puts it: ‘The notion that you get a better valuation in the US, it’s a myth … If you look company by company and adjust for growth rates and other factors, London is at, and in some cases higher, in terms of valuation than the US.’
Hard analysis by investment bank UBS suggests ‘City declinism has been inspired by comparing British apples with American peers’. Before the 2016 Brexit referendum UK stocks traded in line with the global average, at about 15 times forward earnings. As the likes of Alphabet, Amazon, Apple, Facebook, Microsoft, Nvidia and Tesla have roared ahead, the LSE and other markets have fallen behind. But UBS found that when 60 UK blue-chips were paired with their closest US peers, and the tech giants excluded, British stocks were close in value to their American counterparts, and higher in two out of every five head-to-heads. The narrow structural discount that remained reflected higher US returns on capital, which the study attributed to lower taxes and the sheer size of the American market.
Other research shows that inclusion on a US index is not a silver bullet: successful Stateside stocks with international origins typically have a significant American presence. Bloomberg data indicates that highly valued US-listed British companies Ferguson, CRH and Flutter have more than 50pc US ownership. There is no hard-and-fast relationship between a stock’s performance and its chosen exchange. US investors can easily access high quality companies listed in London: seven of the 10 largest groups in the FTSE 100 are majority-owned by US investors. Indeed, many smaller companies that have switched to the US have struggled. A review of 20 companies that have listed on US markets over the past decade found more than a third have since left.
As for liquidity, it is true that stocks typically change hands faster on US exchanges. But, again, the distorting influence of the mega caps must be taken into account. Analysis by European stock exchange group Euronextfound that if the big stocks accounting for more than half of US turnover are excluded, the average S&P 500 blue chip is traded only 1.3 times more than those on UK and other European markets.
The current wave of City reforms is designed to increase London’s competitiveness regarding valuation, liquidity and other factors. The most significant overhaul of rules for London-listed companies in three decades came into effect last summer, including reforms to allow founders and venture capital firms to introduce dual-class share structures and make more decisions without shareholder votes. Further changes are likely to follow such as the consolidation of UK pension schemes to facilitate investment in infrastructure, equities and other riskier assets.
LSE Main Market IPOs to look out for in 2025
But the LSE has several promising IPOs in its pipeline right now, many reflecting Britain’s world class scientific research base. Of the more than 250 European start-ups generating $100m to $500m in revenue, almost half are based in the UK. Potential new entrants to the Main Market include fintech start-ups Ebury, whose services include cross-border payments, payroll transfers, currency risk management and business lending, valued at about £2bn; digital lender Zopa, valued at more than $1bn; and credit-checking platform ClearScore, last valued at $700m.
The LSE can also prove continued international appeal. French media conglomerate Vivendi’s TV business Canal+, which could raise €6bn to €8bn, has indicated interest in joining, as has fast-fashion group Shein, which ships cheap clothes directly from factories in China to western shoppers, valued at $66bn during its latest funding round. Other international companies signalling interest in listing include Latvia’s AirBaltic and Greece-based Metlen Energy & Metals.
LSE star performers in 2024
These future stars promise to perform as well as many of those that joined in 2024, which investment platform AJ Bell reports to have returned an average 36pc. Seven of the 16 stock market flotations on the LSE ‘produced double-digit returns and two companies even doubled or tripled investors’ money’.
Standout performer Rosebank Industries, focused on buying, improving and selling industrial or manufacturing businesses, raised £50m on going public in June, and soared to £175m by the end of the year, as investors wagered on the capacity of founders Simon Peckham and Christopher Miller to replicate their success with FTSE 100 aerospace company Melrose Industries. Microcomputer maker Raspberry Pi jumped more than a third on its first day of trading in London, also in June, delivering a 123pc gain in 2024. Other strong performers included Asian gaming company Winking Studios and investment acquisition firm Selkirk, which listed in November, returning 73pc and 16pc by the end of the year.
AJ Bell investment analyst Dan Coatsworth said the research showed that ‘investors are eager and willing to back companies with a decent story and the right qualities to shine over the longer term … Combine the 2024 IPO performance figures with recent changes to the listing rules and you’ve got a strong sales pitch to help bring in more companies and start to refill the pot of stocks on the London market lost to takeovers, voluntary delistings and transferring their primary listing to a foreign exchange.’
Similar patterns can be discerned in small cap markets, despite the well documented challenges facing AIM and other junior exchanges.
Issues include insufficient coverage by professional analysts (UK small and mid-caps attract a quarter as many as their US peers), a significant reduction over the past 15 years in British investment funds targeting small companies, tightening liquidity, and the tidal pull of investor money towards passive investment strategies focused on major indices. A recent paper by Barclays highlights cogent proposals to address one of the most vexatious issues, the path by which companies can transition from AIM to the LSE Main Market, including extending the tax concessions enjoyed by AIM investors, such as relief from capital gains and inheritance tax, and the abolition of the 0.5pc transaction tax currently levied on many London securities.
Even so, 40pc of all capital raised across Europe’s growth markets has been generated by AIM. ‘Over almost 30 years,’ says the Market’s head Marcus Stuttard, ‘AIM has supported more than 4,000 companies to raise nearly £135bn in equity capital, enabling pioneering businesses to fund innovation, create jobs and drive growth.’ James Ashton, chief executive of the Quoted Companies Alliance, argues AIM is ‘an essential alternative for growth companies that feel they are not ready for the main market’, and that its loss ‘would narrow UK funding options and risk ingraining further a one-size-fits-all approach to regulation and governance that punishes small, entrepreneurial stocks … Without it, I suspect fewer companies would IPO and more that are quoted would quickly go private’ (the Main Market requires a minimum market value of £30m).
AIM stocks to watch in 2025: European Green Transition, Helix Exploration and Pulsar Helium
Strong AIM performers through part or all of 2024 include European Green Transition (AIM:EGT), which listed in April, raising a gross £6.46m to target revenue generating projects across the green economy includingcritical materials, solar, wind, recycling and beyond.
£12.3m market cap EGT, listed by TMS as a share to look out for in 2025, shot up from 10p to 16p in its first two months of post-IPO trading. EGT’s management team, with their proven track record in identifying and restructuring distressed AIM-listed businesses, look forward to establishing a profitable, cash generative business supporting the green economy transition.
The company is looking to sell or find partners for its mining assets in the near future, as it shifts its focus from mining and exploration to developing revenue generating distressed businesses. EGT is currently seeking to monetise its Olserum Rare Earth Element (REE) Project in southern Sweden through sale or partnership. Olserum has been designated a project of national interest by the Swedish Geological Survey. With an Indicated Resource of 4.5 Mt (million tonnes) grading 0.6pc Total Rare Earth Oxides (TREO) and an Inferred Resource of 3.3 Mt grading 0.63pc TREO, the venture has the potential to become Europe’s first operating rare earths mine.
The first metallurgical test work results from Olserum, published last July, confirmed the Project’s mineralisation style is capable of producing a REE-rich concentrate from conventional and relatively simple processing techniques, demonstrating its appeal to REE producers across Europe seeking suitable feedstocks.
Results from the summer 2024 drilling programme confirmed Olserum’s district scale REE potential, andfindings from four holes published in November reported that the Olserum West prospect is mineralised at depth with assay values of up to 8.83pc TREO over 0.5 metres. Results for all 13 holes published soon afterreported that minerals had been intersected in every hole.
While forging ahead at Olserum EGT has secured exclusive rights for option agreements focused on copper tailings recycling and peatland carbon credit generation projects. The company has an option to acquire a Copper Tailings Recycling Project in Cyprus presenting an ideal opportunity to generate capital light near term cash flow while respecting the company’s green commitments.
The Project, focused on the Limni copper mine near Polis in western Cyprus, which produced more than 8.1 Mt at 1.11pc copper between 1937 and 1978, proposes a recovery circuit to extract copper from existing pit waters, and a low-cost water treatment plan, copper tailings production, and, in time, a solar power facility. EGT wants to secure long-term revenue from Limni by partnering with a proven solar power operator once the site’s copper tailings have been recycled. Sampling, the first stage of the due diligence process, delivered encouraging results across 68 samples, grades of acid soluble copper ranging from 0.41pc to 0.92pc, with an average of 0.756pc. Results also indicated potential upside for gold, with samples of up to 1.48 g/t (grades per tonne) recorded from waste near the edge of the pit.
EGT’s second option agreement gives the company exclusive rights to investigate the potential for a peatland carbon sink programme capable of generating carbon credits at the Altan farm in Donegal, Ireland, a 1,370 acre site primarily comprising blanket peatland. EGT views the project, which would be commercialised through a carbon credits revenue sharing agreement with the landowner, as the first in a portfolio of peatland sinks across Ireland, following a project model proven in Scotland. The market for voluntary carbon credits is forecast to grow by a factor of 15 or more by 2030 as companies and governments race to meet net-zero goals.
EGT is well positioned for future growth through 2025, looking to monetise the Olserum project on the back of the promising results from the REE drill programme, and its Pajala copper project in Sweden. With progress on the ground, and the strategic goal set by an experienced team to acquire a revenue generating business supporting the green transition, EGT is one to watch this year.
Two other AIM newcomers worth following are Helix Exploration (AIM:HEX), up nearly 50pc since joining the index in April, and Pulsar Helium (AIM:PLSR), which shot up from 23 to 33p in the first few days of the year.
HEX, a helium exploration company focused on the exploration and development of helium deposits within the ‘Montana Helium Fairway’, raised £7.5m on joining the markets to drill wells on two assets. The Darwin No 1 well at the company’s Rudyard Project flowing 2,750 Mcf/day at 1.1pc helium. The Rudyard field can support multiple production wells on structure with each well having the potential to produce pre-tax cashflow of around $4m per year and drain a large area over a sustained period. The Clink No 1 well at Ingomar Dome Project recovered gas samples assayed at 55.2pc hydrogen in samples isolated from drilling mud, and 2.5pc helium. The samples demonstrate helium and hydrogen potential for commercial flow rates.
PLSR is a first mover at two primary helium prospects, in Minnesota and Greenland. Topaz is a primary helium discovery in a new helium province where Pulsar has a first mover advantage. The completed Jetstream No 1 appraisal well confirmed one of the world’s highest-content helium discoveries, flowing up to 14.5pc helium: grades of more 0.3pc are often considered economic. A development plan is now being implemented to evaluate full production potential. Tunu is a new helium province and is one of the rare primary helium occurrences identified in Europe. The 2,816 km2 licence was generated by the Pulsar team utilising their proven geological model and experience. In 2022, sampling and gas analyses on hot springs identified helium contents of up to 0.8pc.
Outlook
London’s markets face real challenges from US exchanges that have been buoyed further by anticipation of fiscal and regulatory liberalisation under the incoming Trump presidency. But the excitement is febrile, with fears that loose fiscal policy could push up US inflation, limiting the likelihood of lower interest rates. Meanwhile, opportunities exist, as they always have in the UK’s Main and AIM markets for investors alert to each wave of innovative new companies.
