Stock Market Week: Ofex shrugs off the setbacks and scandals

OFEX, the City's fringe, lightly regulated share market, seems to be picking up after experiencing a quiet, perhaps even depressing, run.

Trading fell away in the second half of last year, with those involved in the market wondering whether the slowdown was a backlash from the turmoil, even hysteria, which hit world markets or, perhaps, the first sign that Ofex was losing its appeal.

Nowadays investors are struggling with the problems of Latin America in general, and Brazil in particular, as well as harbouring some nasty suspicions about China.

In the autumn it was the Russian and Far Eastern crashes and the near- oblivion of the allegedly sophisticated hedge fund, Long-Term Capital Management, which created dismay; Footsie, with the gloom-and-doom merchants in full cry, tumbled to below 4,700 points. Despite retreats on Thursday and Friday, it closed last week at 5,861.2.

But Ofex, created by an old-fashioned share jobber, John Jenkins, now views the setback as a mere hiccup.

Even so, the sudden deterioration in trading interest meant that last year Ofex experienced a sharp decline in share turnover to 228.3 million. In the previous year volume was 317.1 million. The number of trades also dropped, from 22,265 to 18,116. But the value of deals was slightly higher, at pounds 159.4m.

Since the new year there has been "reasonable activity", with trading described as "more substantial, if still selective".

The flow of newcomers - a clear indication of the market's appeal - is strengthening. Seven companies have lodged applications to join and another nine are close to applying. Sports seems to be one growth area, with a couple of football clubs as well as rugby and ice hockey clubs hopeful of tapping Ofex investors.

A few football clubs, including Arsenal and Glasgow Rangers, are already traded; the market also sports one ice hockey club, Telford Tigers. Among the potential sporting newcomers, Paisley Pirates - an ice hockey club - seems to be setting the pace. Its bid to raise pounds 250,000 by selling shares at 30p closes tomorrow.

Last year companies raised pounds 60.4m on Ofex, which attracted 49 recruits, although it lost almost as many through takeovers, elevation to other markets and expulsions.

Mr Jenkins's firm, JP Jenkins, a Stock Exchange member company that runs the market, has become increasingly severe on constituents that do not comply with its code of conduct. Last year it removed 27 companies.

Ofex now has approaching 200 members worth around pounds 2bn. Weetabix, the family-controlled breakfast cereal group, is the biggest constituent with a pounds 442.8m capitalisation following last year's takeover of National Car Parking.

A number of companies are currently suspended. Share dealings are frozen for six months and, in the case of casualties, movement has to be made towards restructuring or membership is withdrawn.

Ofex emerged in 1995 from the Stock Exchange's old matched-bargains market, which was unceremoniously killed off when AIM was launched.

Matched bargains evolved as a facility for deals in unquoted companies, often old-established groups where some shares had strayed outside the ruling families.

The decision to remove such a valuable trading pitch caused widespread dismay. However, it provided Mr Jenkins - whose family firm had traded in matched bargains - with an opportunity to establish a share market for companies requiring the occasional share dealing facility as well as young, even start-up, operations that wanted to raise cash.

When the matched-bargain market disappeared, companies such as the brewer Jennings Brothers took AIM; others - the Shepherd Neame brewery was one - went in the other direction to Ofex. Some, unfortunately, took the opportunity to disappear into an investment wilderness.

Nowadays Ofex is an uneven mixture of old-established groups and thrusting start-ups or fledgling operations. It has, of course, experienced its share of scandals and disasters, but they must be expected in a young share market with a sprawling array of young entrepreneurial companies.

Display IT and Skynet Corporation were two to fall heavily from grace. And there has been the inevitable crop of casualties such as Woodstock, a pub group that went bottom up only months after arrival.

But it would be silly to ignore its successes, such as Robotic Technology, a highly sophisticated engineer developing production systems; Po Na Na, running late-night, North African-themed bars, and Electronic Fundraising, which provides Internet lotteries.

EF, currently raising pounds 2.5m through an offer of shares at 250p, is one constituent with a presence at the first Ofex Conference and Exhibition. Around 30 companies are expected to take part. The show, at London's Barbican Centre on 18 February, is being run by Imperator, well known for organising company exhibitions.

No Ofex companies are due to produce results this week, and even the main stock market list looks decidedly thin. Northern Rock and Lonrho offer year's figures.

The building society turned bank should produce a robust performance with pre-tax profits up 46 per cent to around pounds 200m. The previous year's display, however, was depressed by the costs of becoming a bank and further charges involving a branch reorganisation.

The restructured Lonrho, a pale shadow of itself since the end of the Tiny Rowland era, is expected to produce around pounds 100m, down from pounds 198m.