‘An investor who backed London’s 70 IPOs this year would be up 42%’: DAVID BUIK on why City floats are bouncing back
Worries over inflation are denting stock market hopes, but 2021 has proved to be a good year for floats in the City of London, says David Buik.
The veteran city commentator, currently at Aquis Exchange, says that an investor who took an equal stake in just over 70 UK IPOs this year would be have made a return of 42 per cent.
He takes a look at why flotations are back in London and there may be more to come.
Wickes was spun out of Travis Perkins and listed separately on the stock markt this year
Equity markets are starting to see occasional excessive bouts of volatility, which suggest that valuations are starting to get a little frothy and rich for some investors’ blood.
There is a degree of neurosis, which has caused investors to take some risk off the table.
There is a stench of fear permeating on global bourses, which could trigger a modest correction in the weeks to come.
Inflation, a blockage in the supply chain and Covid refusing to come back on the bridle, are amongst the contributory reasons for concern.
However, it is time to reflect on how well the City of London has competed for IPOs, both domestically and internationally so far this year.
There have been just over five years of pent-up demand since the Brexit vote, where the UK equity market became an unattractive place to raise capital.
The absence of the big US names is, in part, a function of the hollowing out of specialised capital-raising capability amongst the large multinational banks.
Raising money in the mid-cap space requires a deep knowledge of the institutional investor base.
If investors had taken an equal stake in just over 70 UK IPOs this year, they would be currently sitting on a return of 42 per cent – more than 4x the FTSE all Share.
This is a particularly good effort, as there is little doubt that writing debt through private equity, is a much cheaper method of raising capital than through capital markets or initial public offerings.
Despite all the misgivings over Brexit and the charm offensives from the likes of President Macron to lure business from London to Paris, or to Amsterdam or to Frankfurt, the ‘City’ has given an excellent account of itself this year.
There is an urgent need to reform regulation to make the raising capital in the UK simpler and easier.
The UK’s newfound freedom to deviate from European Union financial regulation, will eventually provide an opportunity to create a regime that does just that.
The UK has lost a few IPOs to New York and recently the successful €30 billion floatation of Universal Music, which went to a 35 per cent premium in Amsterdam this week.
Notwithstanding those disappointments, London remains steadfast.
Deliveroo’s IPO was one of the most high profile to land in London this year and was seen as a key event due to its tech star status
Above all else the ‘City’ provides the very best legal advice. UK law is all but omnipotent on a global basis and there is little doubt that this ‘jewel in the crown’ has been immensely beneficial to the advisory banks.
City commentator David Buik
There is little doubt that Xavier Rolet, as CEO of the London Stock Exchange, and his team really put London on the map as a major force during his tenure between 2009-2017. Its share price rose from 635p to 3,646p – up 474 per cent.
Today the London Stock Exchange is in the hands of David Schwimmer and its share price has motored to 7,974p!
I salute the efforts of the main exchange, that of its AIM arm and Aquis Stock Exchange, for whom I do some work.
The success of US and European investment banking titans in recent months is taken as read.
However, great credit must go to Numis, Peel Hunt (shortly to go for its own IPO), Panmure Gordon, Canaccord, Robey Warshaw, Cenkos, Liberum, WH Ireland and many others for ‘grasping the nettle’ in advising their mid cap and small cap clients to go for a floatation, as well as providing other forms of finance for the economic recovery.
Bridgepoint, Wise, Darkforce, Mothercare, Moon Pig, Dr Martens, Made.com and Wickes were amongst the successful main market debutantes.
Deliveroo shares sank after its IPO but then went on a strong run before slipping back from early August – they remain up on the float price, however
Deliveroo’s £8 billion IPO got off to a difficult start, initially losing 25 per cent of its value, but it has recovered and stands at 10 per cent above its issue price.
There is more to come in the next few months. EG Group, Oxford Nanopore Technologies, Jaguar Land Rover, BrewDog, Monzo, Starling, McLaren Group and Virgin Atlantic are considering the options open to them, assuming market conditions remain favourable – often key to the success of an IPO!
Aquis Stock Exchange, as an alternative to the established LSE/AIM market, has been responsible for 17 IPOs this year.
Aquis Stock Exchange differentiates itself through its engaged approach with companies and advisers, its appropriate regulation and straightforward process, which saves time and money.
Aquis is also unique in banning short-selling (for added protection of our growing businesses) and its market making scheme which targets a 5 per cent spread and has reduced spreads across our growth market by over 50 per cent so far. Aquis believes that being able to access retail investors with risk appetite is important to improve liquidity and shareholder registers.
Recent AQSE IPOs include China-focused e-commerce business Samarkand and boutique investment bank VSA Capital Group.
The City of London is alive and kicking.