The market for initial public offerings (IPOs) has been exuberant as uncertainties over the US “fiscal cliff” and eurozone debt crisis have diminished and corporate confidence returns, according to a strategist at private bank Coutts.
James Butterfill, Global Equity Strategist at Coutts, says that Though UK IPOs are showing some signs of frothy prices, the deals keep coming, and IPOs in the UK so far this year (58 deals worth US$13bn in total) have almost matched the total value of last year’s new listings. “The key difference to last year is that IPOs are being priced at the lower end of their ranges due to concerns over market valuations. Many issuers have been retailers, such as Poundland and Pets at Home, with deal sizes typically at the smaller end – up to US$100m,” he says.
“However, whereas last year’s UK IPOs appreciated on average by 16% by year end, this year has been more challenging, with shares down by 5% on average since listing. This contrasts with the US, where average IPO gains have been 10%, and also lags the 4% gain achieved across the rest of the world.
“Amid the UK IPO fever, concerns have emerged that investors may be suffering from flotation fatigue. Fat Face, the retailer, pulled its planned London flotation after citing weak economic growth and doubts as to whether it would raise the funds it was seeking. Other deals press forward at the low end of their valuation range, albeit still on a higher multiple of earnings (PE) than the London market average.”
London remains an attractive market on which to list shares, reflecting the UK’s attractive corporate tax rate and the London market’s liquidity and proven track record,” says Butterfill. “Investors may be more wary of valuations, but a flurry of upcoming deals led by Zoopla, Wizz Air and River & Mercantile confirm that investor appetite remains.”