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.
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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.
