Who are the winners and losers in the wave of new stock market companies?


Although the UK stock market’s performance this year has been modest – up some nine percent – this hasn’t stopped retail investors from investing money in stocks and investment funds. .

The paltry savings rates and rising inflation have convinced many investors that it is best to hold assets that can generate returns above inflation, even if those returns are not guaranteed.

The somewhat sluggish stock market hasn’t stopped companies from deciding now is the right time to go public and list them on the London Stock Exchange, often crystallizing fortunes for founders and executives.

Making waves: So far this year, nearly 100 companies have gone public, issuing shares through an initial public offering

So far this year, nearly 100 companies – from delivery company Deliveroo to DNA sequencing company Oxford Nanopore – have gone public, issuing shares through an Initial Public Offering (IPO) which can then be traded at London. This is the highest number of tanks since 2014.

Good news? Yes, but there are concerns that some (not all) companies will enter the market at inflated prices, leaving early investors disappointed as stock prices subsequently fall.

Dan Lane, senior analyst at stock trading firm Freetrade, says the IPO market has turned ‘Jekyll and Hyde’ in nature – “with substandard IPOs like Deliveroo endangering quality. global stock market ”. “There is a danger that companies will rush to capitalize on a flood of foreclosure money,” he warns.

Mike Coombes works for PrimaryBid which helps companies make their IPOs as user-friendly as possible for private investors. PrimaryBid believes private investors should be able to buy shares in all IPOs at the listing price – and not have to wait for the shares to start trading before buying.

This is a point of view that The Mail on Sunday supports through our Fair Play campaign for small investors.

While acknowledging that some IPOs this year have proven disappointing in terms of shareholder return, he argues that a strong new equity issuance market should be welcomed. “The arrival of more companies in our public market is great news for investors,” he says. “The stocks are liquid, transparent and well regulated. Private investors can trade easily, either by buying shares in companies – old and new – and in investment funds.

While he accepts that IPOs carry a high risk-reward ratio because investors are in the dark, the performance numbers are generally encouraging. PrimaryBid looked at the stock price returns of 72 IPOs that were made through the London Stock Exchange this year – the Main Market or the Alternative Investment Market (AIM).

All were at least £ 10million – smaller ones were ignored, as were secondary listings (where a company already has a stock exchange listing elsewhere in the world). Returns are based on the difference between the quote price and the closing price of the share last Thursday.

The biggest “winners” and “losers” are listed in the table below – with a number of familiar names among them. Winners include Darktrace, cybersecurity firm FTSE100 (price up 74%) and Auction Technology listed on FTSE250, an online auctioneer (up 150%).

Losers include furniture maker Made.com (down 31%) and food delivery company Deliveroo (down 33%).

Of the 72 listings, PrimaryBid says the average return is 8.2 percent, slightly worse than the performance of the FTSE All Share (9.1 percent) this year.

“Yes, given the range of performance, the numbers show the high risk-reward nature of IPOs,” Coombes adds. “But I would say they are less risky than popular assets such as cryptocurrencies which are able to advertise their wares with impunity.”

Russ Mold is Director of Investments at wealth manager AJ Bell. He says it is good that more companies are looking to access the capital of the London Stock Exchange. But, like Freetrade’s Lane, he says investors shouldn’t get caught up in the hype that often surrounds new stock listings and end up paying too much for their stocks.

He says: “A new issue of shares should be analyzed and researched in exactly the same way as a company whose shares are already traded in the market. First, an investor needs to make sure that a new stock crosses four hurdles: It fits their overall investment strategy and time horizon while meeting their return and risk appetite goals. ”

If a stock doesn’t overcome all four hurdles, Mold says an investor should “move on and fight any fear of missing out.” If he erases them, an investor must then do his homework on the company by examining its business model and growth potential. Mold adds, “If they like what they see and believe the share price is reasonable, then the new shares may be worth buying.”

WHY SMALL INVESTORS ALSO DESERVE A SLICE

What experts unanimously agree on when it comes to new share issues is that private investors should be allowed to buy shares on the same terms as major City institutions. This is not happening at the moment and that is why The Mail on Sunday is campaigning for “Fair Play for Small Investors”.

Currently, when most companies list their shares on the London Stock Exchange, they are offering them exclusively to institutional investors at an agreed price. As a result, private investors can only get a share of the stock after trading in the shares has started. Often times, this means they have to pay more for their stocks, as many new issues start trading at a high premium.

PrimaryBid believes that a slice of all new equity issuance should be made available to private investors. He says retail investors are often treated as “second class citizens”.

Lee Wild, head of equity strategy at asset manager Interactive Investor, agrees. He says: “Retail investors have been stuck in the IPO desert for too long, often left to pick up the scraps once the city’s institutions have the cream of the crop.” But things are changing and retail investors should expect to participate on an equal footing as pressure increases on companies and their advisers to add an element of retail to every stock exchange listing. ‘

If you would like to support our Fair Play campaign for small investors, register your support at publicinclusion.co.uk.

Some links in this article may be affiliate links. If you click on it, we may earn a small commission. This helps us fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.


Comments are closed.