This AIM stock is moving to the LSE’s main market. Should I buy?

If an AIM stock upgrades to the main market, is it a good thing? Here I take closer look at what’s happening with one company.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I covered AIM stock Draper Esprit (LSE: GROW) in November. I was bullish then and I still am. The shares are up more than 20% in 2021 so far and have increased over 70% during the past 12 months. Of course, past returns aren’t an indication of future performance.

The firm released its full-year results yesterday. The numbers were encouraging, but what really caught my eye was that it’s upgrading to the London Stock Exchange’s main market. I’d still buy the AIM stock and here’s why.

The results

Draper Esprit is a venture capital firm that invests in high-growth tech firms in Europe. The gross value of its portfolio at the end of March 2021 grew to £984m from £703m the previous year.

The company generated £206m in cash proceeds from a series of successful exits, including Peak Games and TransferWise. It also made money from its partial disposal of Trustpilot.

The AIM stock has performed well in the pandemic due to the accelerated transition to digital services. This has clearly paid off for Draper Esprit’s portfolio of companies.

During the year, the venture capitalist has made a number of new investments in companies like Cazoo, the British digital used car marketplace, as well as PrimaryBid,  a technology platform that allows retail investors fair access to public companies raising capital.

The upgrade

As I previously mentioned, what really was the icing on the cake was that the company is looking to move from AIM to the main market. But what’s the point of this and is it good for the stock?

The company has clearly grown and matured. Typically, a firm will list on AIM to raise money and expand its profile. Draper Esprit has done this and so the natural progression is to upgrade to the main market.

This should be good for the company’s future development as it should raise the firm’s profile further. It means that investors, such as asset managers that couldn’t invest in junior AIM stocks, now have the option to buy the shares.

This also includes tracker funds that cover the main market as well. At some point, these passive investments will have to purchase Draper Esprit shares to ensure that the underlying index of the main market is fully covered. All this buying should mean that the stock price should increase. Hence, I’d buy now.

The company expects to transfer its listing and “complete the move within the next couple of months”. I like that there’s a quick turnaround on the upgrade. 

Risks

The firm has performed well on the junior market but there’s no guarantee this will continue, especially after the upgrade. It’s worth highlighting that main market regulation is much higher than on AIM.

The company will likely be scrutinised much more, which could impact the shares. The stock is already trading close to its all-time high, which makes it sensitive to any negative news.

But on the whole, I think this upgrade is positive for Draper Esprit. It’ll certainly be much more visible on the investment radar, which I think is a good thing in the long term.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Nadia Yaqub has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »

Investing Articles

2 FTSE dividend shares yielding more than 6% with P/Es of less than 9!

Harvey Jones picks out two brilliant FTSE 100 dividend shares that yield more than 6% but are selling at strangely…

Read more »

Investing Articles

Up 105% in a year! Is this rocketing FTSE bank the perfect pick for my Stocks and Shares ISA?

Harvey Jones is drawing up a shortlist of stocks to purchase inside his Stocks and Shares ISA allowance. This FTSE…

Read more »