Derek Pain: Plus market's 'penny dreadful' share price shows City worries

No Pain, No Gain

Plus, the fringe share market that houses two constituents of the no pain, no gain portfolio, is going through a difficult patch. Its shares, once above 40p, are changing hands at around 2p after the company incurred heavy losses.

Many stock markets have felt the impact of increasing competition as well as the recessionary pinch in recent years. Even the London Stock Exchange has encountered problems, with its fully listed and AIM platforms far from immune to the current tough economic climate. But Plus has the additional encumbrance of what can only be described as self-inflicted wounds. It is undertaking a strategic review and has identified remedial action.

It's all a far cry from last summer, when Plus won the right to provide a dealing platform for all AIM shares – it already handled some fully listed and AIM stocks. Turnover mushroomed in the final four months of 2009 as more and more City dealers used its facilities. But it was profitless prosperity. The bonanza produced little reward for the Plusmen.

I have followed the Plus story since the share market appeared in the mid-1990s. It was created by a veteran stockjobber, John Jenkins, who realised that the LSE's decision to kill off its obscure matched bargains operation left many unquoted but public companies without a market in their shares. So around the same time that the LSE launched its junior AIM facility he produced a fringe market he called Ofex (Off Exchange).

Ofex certainly fulfilled a need. It attracted many small, often cash-hungry companies as well as old-established and substantial matched bargain players with long shareholder lists such as the brewer and pub owner Shepherd Neame and Arsenal football club.

For a number of years Ofex seemed to perform satisfactorily, despite the occasional company disaster, and even floated its shares on AIM. It then encountered problems. A batch of City names came to the rescue, pumping cash into the group. New management, including the former AIM chief Simon Brickles, was drafted in, and the Ofex banner was surrendered in favour of Plus.

But despite notable victories, such as obtaining Recognised Investment Exchange status and enjoying the right to trade in more than 7,500 UK and European shares, Plus has woefully failed to generate profits. In the last four years it has lost more than £22m.

And competition is likely to get even more fierce, with the LSE – under pressure from the busybodies of Brussels – obliged to introduce new, more relaxed requirements for fully listed shares. Such a move could impact on its own more lightly regulated AIM market as well as the even more accessible Plus.

Clearly its cash haemorrhaging cannot continue. The company may have had £10.7m at the end of its last financial year but it desperately needs to cut losses.

A new policy appears to suggest that more energy will be devoted to what is its core operation: its Plus Quoted section, which is a distinctive entity from such operations as Plus Europe and the facility dealing with AIM shares. Plus Quoted is the original Ofex. It has, like most markets, been forced to endure a difficult run, with constituent shares losing value and market numbers declining. New issues have become increasingly rare. There is also criticism of what is seen as Plus Quoted's poor liquidity and cash-raising ability, as well as its wide spreads.

The fringe market has also to find a way of extracting profits from its other dealing platforms and make more of its existing European links. The group is also developing Arab connections and has won a £5m-plus investment from a Middle Eastern consortium. There are high hopes that this association will encourage overseas companies to flock to its banner.

Giles Vardey, an experienced City man, took over as chairman earlier this year and is heading the strategic review. He has said costs can be cut from last year's £8.75m to £5m, and has indicated that new revenue streams will be tapped and greater use made of the important RIE status.

Plus is an invaluable part of the investment scene. Its "penny dreadful" share price illustrates City worries. For investors and many companies Plus has provided a much needed facility. I hope it will continue to do so.