First published in the Quoted Cleantech newsletter - May 2010

by Andrew Hore

The Alternative Investment Market’s cleantech sector has been underperforming the FTSE AIM 100 index for the whole of 2010, but it now appears to be closing the gap.

Although the Sigma Capital Cleantech index has risen by 28% over the year to 23 April 2010, that gain is less than one-half of the 62.1% rise achieved by the AIM 100. Cleantech has been lagging behind AIM since the end of 2009, but there are signs that the sector may be starting to catch up.

In the past month, the Sigma Cleantech index has increased by 3.3%, slightly more than the wider AIM index which gained 3.1%. However, the rise in the most recent week was 2.4%, which was more than double that of the market.

The solar sector is leading the way. ReneSola accounts for nearly one-fifth of the Sigma Cleantech index on its own; therefore when the company’s share price increases there is a good chance that the index will follow. The next biggest weighting is that of carbon trading business Trading Emissions, which accounts for 11.9% of the whole index. The limited number of companies in the Sigma Cleantech index – currently only 38 – makes its performance dependent on the performance of a few larger companies.

It is still early days and the signs of progress could just be a blip. There are indications of good news from the sector, though, which will provide a base to assist in the improvement of the sector’s performance.

Positive technology news from catalysts and fuel cell products developer, Acta, and good results from biodiesel producer, China Biodiesel International, have contributed to the sector’s rise.

Continued positive newsflow will be important to the ongoing prosperity of the sector. A number of companies, such as alkaline fuel cells developer AFC Energy, have bounced back from severely depressed share prices. For share prices to continue this momentum, companies will need to provide investors with news of further progress. AFC has done this, making it consistently one of the better performers in the sector.

Improved sector performance could make AIM more attractive to new entrants. Currently it is not concept businesses which are of interest to investors, but those companies which generate revenues and profits. There are some signs of an increasing interest in flotations, but any momentum in this area will take time to build.

One firm that has considered an AIM flotation is environCom, which recycles waste electronic equipment and has annual sales of around £12 million. The company needs to raise cash so that it can open up more facilities in the UK and Europe in order to meet the growing recycling demand resulting from EU regulation. According to chief executive Joe Quigley, it can take £10 million of investment to set up a new site.

environCom recently lost a £6 million claim against its insurance broker relating to a 2007 fire that destroyed its Grantham facility. It is not clear how this will affect the company’s flotation plans.  

TMO Renewables, which has developed technology that can convert biomass into ethanol, and solar technology company Solarcentury are both thought to be considering flotations, not necessarily on AIM, although this would seem the appropriate market.

Former computer games distributor turned shell company IncaGold has “signed a pre-contractual heads of terms agreement” with a business in the renewable energy sector which plans to reverse into the AIM company. Shares in IncaGold were suspended at 0.4p each, having more than doubled in the few hours before suspension. So far there is no information about the precise area in which the reverse takeover candidate operates.

Although flotation is seen as a possibility for many cleantech companies, there seems to be a view that cleantech new issues will still be limited in number this year, with a trade sale being considered a far more likely exit route. The benefit of a flotation is that management and investors still have an interest in further upside in the business.

Of course, if the stock market performance of the cleantech sector continues to improve, this would make the flotation route increasingly attractive.

 

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