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ASOS to leave AIM: why this matters to investors
One of AIM’s biggest success stories is finally packing its bags and moving to London’s Main Market. Fashion retailer ASOS (ASC:AIM) will switch markets by the end of February and this event could potentially see a few other businesses do the same.
AIM was set up as a market for young companies to access capital markets and tap up investors for cash to help them grow, as well as use their shares to help pay for acquisitions.
ASOS originally set out to sell copycat clothes to ones worn by celebrities on the TV or in films, as per its full name As Seen On Screen. Today it is an established international online retailer and from an investment perspective would be better off sitting alongside similarly more mature businesses on London’s Main Market.
AIM is still associated with higher-risk, more speculative companies – that’s not somewhere you would expect to see a business such as ASOS which made nearly £200 million pre-tax profit in its last financial year. Distancing itself from AIM and the plethora of loss-making biotech and natural resources companies is long overdue.
Shareholders could benefit from ASOS moving to the Main Market as its premium listing category will see it qualify for the FTSE 250 index later this year. Index funds tracking the performance of the FTSE 250 will become active buyers of the stock. This phenomenon didn’t happen on AIM because traditionally there haven’t been specific index funds tracking the junior market.
Years ago, a lot of fund managers would not look at AIM for stock opportunities as many would have had a mandate to stick to the Main Market. That approach has long disappeared and AIM now sits comfortably alongside Main Market stocks when fund managers do their research, with most UK-focused professional stock pickers saying the listing venue is irrelevant to them, it’s each company’s fundamentals or opportunities that really matter.
Domino’s Pizza (DOM), the London-listed entity which owns the UK and Ireland franchise of the fast-food brand, and mining group Petra Diamonds (PDL) are two examples of companies that moved from AIM to the Main Market as they became much bigger businesses.
They both went on to join the prestigious FTSE 250 index of mid-cap stocks, although Petra has had a run of bad luck in recent years due to debt pressures and volatile commodity prices.
At the time of writing, ASOS is the sixth biggest stock on AIM after Hutchmed (HCM:AIM), Abcam (ABC:AIM), Fevertree (FEVR:AIM), Jet2 (JET2:AIM) and RWS (RWS:AIM). Those five other companies could easily put forward an argument for moving to the Main Market given how they’ve matured as businesses, and ASOS’s actions might even stir up the debate in boardrooms about the benefits of moving market.
The more acquisitive companies such as RWS might see merit in staying on AIM where rules are laxer than the Main Market and deals can be done faster as most don’t require shareholder approval. Equally, many shareholders would welcome the greater transparency that comes with being a Main Market company.
Fundamentally leaving AIM could be a good move for ASOS, yet it still needs to find ways to revive stronger sales growth if it is to truly win back the market’s favour.