Investors in the UK, notoriously hard to win over in recent months, are warming to the idea of putting money in fresh listings once again, according to a survey. But with issuers still eyeing the market with skepticism, there are few bargains to be had.
(Bloomberg) — Investors in the UK, notoriously hard to win over in recent months, are warming to the idea of putting money in fresh listings once again, according to a survey. But with issuers still eyeing the market with skepticism, there are few bargains to be had.
Investment bank Numis Corp Plc canvassed 200 institutional investors that allocate to UK equities and found more than 84% willing to meet with IPO prospects, while 78% were ready to back one if conditions are right.
“IPOs have a long lead time, institutional investors are keen to meet high-quality IPO candidates and there is more appetite now for new listings,” Numis Co-Chief Executive Officer Ross Mitchinson said in an interview. “But many issuers are still sitting on the sidelines.”
This level of investor interest has become uncommon in recent months, with most portfolio managers reluctant to commit, deterred by high inflation and interest rates and the threat of a global recession. Still, new London listings are rare: Just two tiny companies have floated in the City this year, raising only $7 million, marking the worst quarter for the global financial capital in two decades, according to data compiled by Bloomberg.
“Dialog is picking up, and we’ll likely see activity return in the second half of the year,” Mitchinson said. “But it won’t be before 2024 that we see a full return in IPO activity.”
While muted IPO volumes in the UK tally with a global drop, the British capital has been grappling with a widening stock-valuation discount to New York. Just this month, two major companies announced they had picked the US for their main listings ahead of London — CRH Plc, one of Europe’s biggest building materials companies, and Softbank-owned Arm Ltd., a jewel of Britain’s technology industry.
New York Calling
Exposure to the US and attractive multiples for global peers may be an inducement for large companies to seek a New York listing, but not all British companies are looking to relocate, according to Mitchinson. “UK-headquartered companies with large customer bases here have little incentive to go to the US,” he said. “This is especially true of small and mid-cap companies.”
“De-equitization has been a one-way street for the last 18 months or so,” Mitchinson said. “But we do expect to see greater balance between delistings and IPOs, starting in the second half of the year.”
A return to equilibrium will bring much-needed relief to the market, but issuers have many barriers to overcome this year, including increasingly volatile markets caused by cracks in the banking system. The seizure of Silicon Valley Bank, the biggest US bank failure since the financial crisis, has created shock waves, while the cost of credit derivatives linked to Credit Suisse Group AG blew out to levels reminiscent of the financial panic of 2008 on Wednesday, sending European equity indexes tumbling.
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