At 08:00 today, shares in polyhalite miner Sirius Minerals (LSE: SXX) moved to the main market and (although still to be confirmed) a place in the FTSE 250. As the Alternative Investment Market (AIM) loses one of its nine companies valued over £1bn, what does this huge step mean for the firm and its investors?
Of course, the instantaneous suspension of shares on AIM and admission to the main market won’t make a difference to holders of Sirius Minerals in some respects. No new shares are being issued to coincide with the move, nor does Sirius have any intention of raising capital in this way. The company’s ticker also stays the same. That said, there are some things that definitely will change.
First, Sirius will be getting a lot more attention from fund managers both in the UK and overseas. As a result of rules preventing them from investing in any shares on the junior market, they were previously denied the opportunity of buying into the North Yorkshire success story. Even if access was previously permitted, the move to a market where corporate governance and regulation are more stringent is sure to inspire confidence in institutional investors keen to avoid career-ending decisions.
Second, the fact that index trackers and exchange traded funds will be forced to buy the stock ensures that some uplift is likely over time. This will happen regardless of how risky the company is regarded as being by those running these passive vehicles. And with that comes even greater liquidity.
Third, the move is likely to raise the company’s profile in a more general sense and beyond the investment community. Indeed, CEO Chris Fraser and his management team were keen to stress that entry into the main market would not only provide the company with a “more appropriate platform for its growth” but also be in keeping with the “nationally significant nature” of its project.
Of course, none of the above mean that the share price must soar. That will be dictated by the company’s performance and, for the next few years, progress with the construction of the Woodsmith mine. On this front, however, all seems to be going smoothly, explaining why shares in Sirius have jumped 49% in only a month. Investors will be hoping for more of the same after the next quarterly update, due at the end of June.
Of course, a successful move to the main market is never guaranteed. While some companies have thrived, a number have faltered. Falling firmly in the former camp would be Domino’s Pizza, self-storage mid-cap Big Yellow and online betting company, GVC. In the latter, you might include clothing retailer Bonmarche and Gulf Keystone Petroleum. Some companies have even returned to the junior market over the years.
One thing that investors must also be aware of is that they will now be required to pay Stamp Duty Reserve Tax whenever they purchase stock in Sirius. Right now, this is calculated at a flat rate of 0.5% (rounded up or down to the nearest penny) based on how much is paid. Buying £5,000 worth of stock in Sirius today will therefore set you back £25 more than it would have done yesterday (£5,000 x 0.05%). As always, commission costs and the bid/ask spread also need to be considered.
Make no mistake
While I remain bullish on Sirius's long-term prospects, buying its shares on the assumption that they will automatically rocket on being admitted to the main market would be a mistake.
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Paul Summers owns shares in Sirius Minerals. 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.