UK
set for record year for IPOs as investors search for companies to benefit from
returning consumer confidence.
Britain
is on track for a record year for flotation’s as companies press ahead with initial public offerings (IPOs) despite
signs of investor fatigue.
So
far this year, 40 companies have raised £5.7bn after the market for new shares
went into overdrive following years in the doldrums, figures supplied by
Thomson Reuters show.
The
total for 2014 so far easily outstrips the previous £4.9bn record for the same
period in 2007 and the £2.9bn equivalent in 2006, which went on to be the
all-time biggest year for flotation’s.
At
the previous full-year market peak in 2006, 134 companies raised £12.1bn. The
total fell to £10.7bn the following year and then plunged to £505m in 2008 as
the financial crisis hit its peak.
Year-to-date
figures for 2014 do not include Lloyds
Banking Group’s flotation of its TSB business.
The bank is expected to publish the prospectus for the long-awaited IPO on
Monday. The sale was forced on Lloyds by the European Union after the UK
government waived competition concerns to let Lloyds rescue HBOS in early 2009.
TSB
is expected to be sold below book value in an attempt to entice buyers and the
sale of the first tranche of 25% of the shares is likely to value the business
at between £1.12 and £1.44bn – between 0.7 and 0.9 times its book value.
Detailed
figures in the prospectus are likely to show that TSB is making some of the
lowest returns among high street banks and is not expected to make profits or
pay dividends until 2017. The IPO comes after the collapse of a planned sale to
the Co-op of the TSB branch network, as the scale of the purchaser’s troubles
emerged.
TSB
will be spun off with 631 branches, about 6% of the banks nationwide, while it
only accounts for 4% of the current account market.
Other
flotations in the pipeline include the AA, which published details of its IPO
on Friday. Property website Zoopla, discount retailer B&M and easy Hotel,
the budget hotel chain, are also set to list in the next few weeks, despite
increasing wariness from investors swamped by new offers.
Ivor
Pether, a senior fund manager at Royal London Asset Management, said: “I’ll be
looking at TSB closely because it’s a forced disposal, and the market knows
that Lloyds has to sell the rest by the end of 2015 so it has to be priced
attractively. This IPO has to take off because if the first tranche is a flop
it’s a very poor precedent for the other 75% they will be selling later on.
That means we may get the IPO discount we would expect and that we haven’t been
getting in a lot of other issues.”
The
market was gripped by IPO fever in the first few months of this year as
investors threw off years of caution in search of companies that could benefit
from the recovering economy and returning consumer confidence. Retailers and
online businesses were high on fund managers lists.
But
after initial enthusiasm, investors have become wary of the valuations placed
on companies by their sellers’, which are often private equity firms seeking to
unload businesses they bought before the financial crisis.
Simon
Gergel, head of UK equities at Allianz Global Investors, said: “Many of the
recent IPOs have gone at a premium. I look to see a good reason to buy the
business given that investors have far more information than the buyers. In
most cases the vendors know the business and they pick their moment.
“You
often get a lot of IPOs towards the top of the market. The valuations in many
areas are looking a bit extended and investors need to be careful.”
Game,
the video game retailer owned by a US hedge fund, on Friday priced its
flotation at the bottom of the 200p to 212p range it had proposed to investors
the day before.
Fat
Face pulled its planned IPO last month after investors refused to meet the
£400m-plus price demanded by the casualwear retailer’s private equity owners.
Saga, the over-50s insurance and travel business, was forced to value the
company at the bottom of a price range its buyout firm owners had already cut
under pressure from investors.
Fund
managers started driving a harder bargain after several recently listed
companies’ shares fell below their IPO prices, ringing alarm bells about pricy
valuations.
AO
World, the online kitchen appliance and TV retailer, signaled the return of IPO
fever when it floated in February. Its shares rose by more than a third on the
first day of trading but the shares have been below the float price for two
months.
Other
high-profile floats to leave early investors short changed include retailers
Pets at Home and Card Factory and online takeaway food service Just Eat.
The
market picked up to £8.04bn last year, helped by the successful flotation of
insurer Direct Line and the high-profile listing of Royal Mail, whose shares
surged by more than a third on the first day of trading.
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