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Stocks listed on the FTSE AIM are exempt from stamp duty. This makes a difference because a typical rate of 0.5% is charged on non-AIM listed stocks. This can significantly impact overall returns, especially for frequent traders or those making large investments.
This tax advantage makes AIM stocks potentially more attractive to investors. It reduces the overall cost of investment and, in theory, may contribute to improved liquidity in these growth-oriented companies.
For investors focused on smaller, potentially high-growth companies, the stamp duty exemption on AIM stocks can be a meaningful factor in their investment strategy and portfolio construction.
What’s more, any gains or dividends made on AIM-listed investments is free from capital gains tax and income tax if purchased through the ISA wrapper. Coincidentally, the deadline for 2024/25 ISA contributions is 5 April. Investments don’t need to be made before this date. However, here’s one stock I think is worth considering.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Unfortunately overlooked
I believe investors often overlook AIM stock Jet2 (LSE:JET2). Even those who know it’s exempt from stamp duty. With a market cap of £2.8bn, it’s the largest company on the AIM index, and ranks 113 in the UK’s largest listed companies by market cap. In other words, its market cap would put it in contention for the FTSE 100 if it were to meet Equity Shares Commercial Companies requirements and join the main market.
However, while the stamp-duty exemption is great, there’s are issues with being AIM-listed, namely, lower visibility and investment potential. For one, companies in the FTSE 100 and FTSE 250 benefit from the automatic investment by index tracking funds. AIM companies simply doesn’t benefit in the same way.
Index tracking funds, which aim to replicate the performance of specific indexes like the FTSE 100 and FTSE 250, cannot include Jet2 in their portfolios. This means the company misses out on the automatic investment that comes with index inclusion. This is a potential limit on its liquidity and share price growth.
Furthermore, many institutional investors and pension funds have mandates that restrict them to investing in main market companies or specific indexes. By being AIM-listed, Jet2 may be overlooked by these large, influential investors, potentially impacting its long-term growth and valuation.
Seriously undervalued
Jet2 appears significantly undervalued to me, despite strong financials. The stock has seen little movement since December 2020, even as peers like International Consolidated Airlines have rallied. A key factor could be its AIM listing, limiting institutional interest. Additionally, Jet2’s lower-margin business model makes it more susceptible to rising costs, including National Insurance and wage increases.
However, the company’s fundamentals remain compelling. With £2.3bn in net cash against a £2.8bn market cap, its enterprise value (EV) is just £600m. The stock trades at 7.1 times forward earnings and an EV-to-EBITDA (earnings before interest, tax, depreciation, and amortisation) ratio of 1.1. That’s vastly cheaper than International Consolidated Airlines and TUI. Fleet expansion plans, aligned with industry capex norms, should enhance efficiency without overburdening finances.
However, with decent earnings growth projected and a net cash balance forecast to hit £2.7bn by 2027, Jet2 remains an overlooked opportunity, in my view. This is why I’ve been gradually topping up my position and may add more. I think it’s a winner.
