Lighthouse Group, a financial advisory business that has seen its share price collapse since it was listed in London 12 years ago amid declining sentiment for such firms, proposes to quit the stock market.

The firm, which entered the Alternative Investment Market at a share placing price of 160 pence (around $2.84) a share in late 2000, now trades just over 3 pence.

Lighthouse Group is asking shareholders for approval for it to be taken off the market. Under rules of AIM, such a vote must be carried by at least 75 per cent of the votes cast. A shareholder meeting is scheduled for 31 July. If the vote is “yes”, the firm will cease AIM membership on 8 August, according to a statement yesterday.

"For some time the conventional advantages of being listed on AIM have not applied to the company and consequently the board believes that it will be more advantageous for Lighthouse to operate as an unquoted entity,” David Hickey, chairman, said in the statement.

The decision to propose a de-listing drew criticism, however. Paul Mumford, senior investment manager at Cavendish Asset Management and owner of Lighthouse Group shares as part of his AIM Fund, was unimpressed. 

“The Lighthouse Group management clearly thinks that there might not be much of a future for the company once the RDR reforms come into effect. Whether this fear is justified or not, the manner in which they are going about de-listing for AIM is shoddy to say the least, and will disproportionately hurt the majority of shareholders in order to benefit the few," he said. His comments on RDR referred to the Retail Distribution Review programme of UK regulations on IFAs that are due in 2013.

“The company is in a decent situation at present, with a market cap of £6 million and £11 million in cash. The directors only hold seven per cent of the business and may be looking to get a quick sale following the de-listing; yet since the announcement the overall share price has plummeted from 5.75p to 3p. The least the management could do for the other 93 per cent is table a cash offering at the value at the time of the announcement. Should no offer be forthcoming I would urge fellow shareholders to vote against the de-listing, as given the way in which it is being done it can only hurt their interests,” Mumford said.

Later, the firm explained in more detail its decision to WealthBriefing.

“The board has concluded that none of the benefits traditionally associated with being admitted to trading on AIM have applied to the company for some considerable time and this is not expected to change in the foreseeable future. In the meantime there are considerable costs, both financial and in management time, associated with maintaining its status as an AIM company,” a spokesperson said.

“In particular, the requirement to provide regular strategic and trading updates under the AIM rules is potentially commercially disadvantageous at a time of significant regulatory change within the IFA sector,” the spokesperson said.

Pressure

The decision highlights the pressures some independent financial advisory firms are under.

“It was generally believed that trading and development prospects for the IFA sector were sound, and consequently the investment community was supportive, especially of the many new IFA businesses being formed and floated,” the spokesperson continued.

“In the immediate aftermath of that period, some groups prospered for a time and during 2001 the aggregate market value of quoted IFA groups exceeded £250 million. However in subsequent years a number of high profile IFA groups, including the majority of those quoted, ran into regulatory and trading difficulties, and became insolvent. Today Lighthouse constitutes the only IFA group still quoted on AIM and its current market capitalisation is approximately £6 million,” the spokesperson said. 

The decision will be particularly ironic at a time when Lighthouse Group has seen some improvement in recent figures, but to little avail regarding its share price. For example, when it issued first annual trading results on 15 March 2001, Lighthouse announced turnover of £5 million, EBITDA losses of £1.5 million, and cash balances of £35,000. The share price on 15 March 2001 was 60p. In the company’s 2011 preliminary results for the year ended 31 December, released on 11 March 2012, Lighthouse recorded turnover of £60 million, EBITDA profits before non-recurring operating expenses of £1.6 million and net cash exceeding £11 million. The closing share price on 6 July 2012 being the last dealing day prior to the date of this de-listing proposal announcement was 4.88p.

“The board believes that this clearly demonstrates that sentiment for IFA businesses amongst the investment community has declined dramatically over the past decade,” the spokesperson said.

The board believes that it is difficult to see how the investment community will redevelop a desire to acquire and hold IFA related shares in the foreseeable future,” the firm continued.

The independent financial advisory sector in the UK faces rising regulatory burdens, including the Retail Distribution Review. This programme of reforms, which outlaws the use of commissions, among other changes, has been cited as a reason why up to 15 per cent of UK IFAs might go out of business.

The Lighthouse Group spokesperson said there are other negative forces at work. “In parallel, the collapse of several substantial international financial entities after 2008 has resulted in numerous concerns, reviews and litigation surrounding the potential mis-selling of retail financial products, including within the IFA community.”