UK IPO's post 24% average gain despite Deliveroo flop

Despite Deliveroo's disastrous flotation, London listings have been reasonably buoyant in 2021, with stocks posting healthy gains since coming to market.

After the car crash flotation of Deliveroo (ROO) earlier this year and a slowdown in London listings more recently, it would be easy to get the impression that the UK market for initial public offerings (IPO) has cooled off.

But despite Marex Spectron, Tungsten West and Elcogen all postponing plans to go public last week, AJ Bell’s Russ Mould says the picture ‘may not be as black as it seems’.

First day of trading gains, or ‘pops’, have not been of the same order of magnitude as those in the US, and London has felt remote from the craze for special-purpose acquisition companies, or Spacs, but the figures tell the story of a UK IPO market in decent health.

‘The average share price gain across the 40 or so firms that have made it to market this year is 24%, compared to the initial offering price,’ said Mould, investment director at the online stockbroker. 

‘It can therefore be argued that investors are sifting through market newcomers in a very methodical manner, buying those that meet their governance, business model, financial performance and valuation criteria and spurning those that do not.’

New listings year to date have raised £3.2bn of capital, according to the London Stock Exchange, the highest level since 2015. 

The perception of a lacklustre IPO market has been compounded by the wet reception for larger tech-related companies like Deliveroo, which has slumped 35% since listing (see table below) and Canadian semiconductor company Alphawave (AWE), down 23%.

There have been fears that this could discourage more tech companies in the sector, where the FTSE 100 sorely lacks depth, from following in their footsteps.

But there have also been brighter spots like cybersecurity company Darktrace (DARK), up 42%. CItywire AA-rated Keith Ashworth-Lord backed the company at IPO in his UK Buffettology fund, arguing its machine learning technology had created an ‘economic moat’

Shares in Auction Technology Group (ATG) have been even more buoyant, nearly doubling, up 95%, since listing in February. Significant investors there include Caledonia (CLDN ) investment trust, the recently rebranded Abrdn – via the firm’s ASI UK Mid-Cap Equity UK Opportunity Equity  and other funds – and Jupiter Asset Management through its UK Smaller Companies Focus and UK Smaller Companies funds.

Dan Nickols, the Citywire +rated manager of the latter, has said a pillar of his team’s strategy is building relationships with private companies before they list. That approach has also led to the team backing Moonpig (MOON), Supreme (SUP) and Foresight Group Holdings (FSG) at IPO recently.

Poor access for retail investors

Mould said it was ‘still frustratingly difficult for private investors to get access to IPOs at the actual offer price’, leaving them scrambling to buy stock on the open market.

‘As such, they will have not had a chance to accrue that average 24% capital gain. But at least professional money managers have been doing their job by protecting client funds and not piling into any old deal at any old price,’ he said.

The 24% figure represents the mean rise in the shares of 40 companies which have listed this year from the IPO price to Friday last week, without any weighting for their market capitalisation. 

Jason Hollands, managing director at online broker Bestinvest, pointed out the Alternative Investment Market (AIM) in particular continues to swell its ranks, while starting to shed its ‘Wild West reputation’ with more liquid and larger companies now being quoted. 

In the first five months of 2021, some 28 companies have been added to the junior market, which will mark its 26th birthday on Saturday. That is almost as many as the 31 joiners in the entirety of last year.

Notable firms to list on AIM this year include video game maker Tinybuild (TBLD), the largest ever American company to list on AIM, according to Hollands. Significant investors in it include Premier Miton’s Jon Hudson and Benji Dawes, in the AAA-rated pair’s Ethical and UK Growth funds, the Chelverton UK Equity Growth  fund, and the Amati UK Smaller Companies fund, which is also a backer of Auction Technology Group.

London 2021 IPOs ranked by performance since listing

table.tableizer-table { font-size: 12px; border: 1px solid #CCC; font-family: Arial, Helvetica, sans-serif; } .tableizer-table td { padding: 4px; margin: 3px; border: 1px solid #CCC; } .tableizer-table th { background-color: #104E8B; color: #FFF; font-weight: bold; }
Company Date Market Money raised (£m) Gain/loss now vs IPO price
Caerus Mineral Resources 19-Mar UK Main Market 2.3 172.0%
Cornish Metals 16-Feb AIM 8.2 137.1%
Nightcap 13-Jan AIM 4.0 130.0%
Auction Technology 23-Feb UK Main Market 247.4 94.7%
MGC Pharmaceuticals 09-Feb International Main Market 6.5 69.3%
Trellus Health 28-May AIM 28.5 61.3%
Supreme 01-Feb AIM 7.5 48.5%
Tinybuild 09-Mar AIM 36.2 47.9%
Roquefort Investments 22-Mar UK Main Market 1.0 45.0%
Amte Power 12-Mar AIM 13.0 43.6%
Darktrace 30-Apr UK Main Market 143.4 41.8%
Cellular Goods 26-Feb UK Main Market 13.0 38.6%
Dr Martens 29-Jan Main Market 0.0 35.8%
Moonpig 02-Feb Main Market 20.0 35.2%
Activeops 29-Mar AIM 0.0 22.9%
Trustpilot 23-Mar UK Main Market 46.7 22.5%
Virgin Wines 02-Mar AIM 13.0 20.6%
In The Style Group 15-Mar AIM 11.0 18.0%
Bellascura 28-May AIM 17.5 17.8%
Digital 9 Infrastructure 31-Mar UK Main Market 267.0 9.1%
Dianomi 24-May AIM 5.0 7.9%
Kitwave 24-May AIM 64.0 7.7%
Taylor Maritime Investments 27-May UK Main Market 112.7 5.0%
Cordiant Digital Infrastructure 16-Feb UK Main Market 370.0 4.0%
Foresight Group 04-Feb Main Market 35.0 1.2%
VH Global Sustainable Energy Opportunities 02-Feb Main Market 242.6 0.7%
Arecor Therapeutics 03-Jun AIM 20.0 (0.6%)
Mast Energy Develpoments 07-Apr UK Main Market 5.5 (1.0%)
MusicMagpie 22-Apr AIM 15.0 (1.0%)
Pensionbee 21-Apr UK Main Market 55.0 (3.6%)
Artisanal Spirits 04-Jun AIM 15.0 (4.0%)
Glantus 11-May AIM 10.0 (7.4%)
Parsley Box 31-Mar AIM 5.0 (9.0%)
East Star Resources 04-May UK Main Market 2.0 (13.0%)
Oxford Cannabinoid Tech Holdings 21-May UK Main Market 16.5 (13.6%)
Team 08-Mar AIM 7.5 (15.3%)
Alphawave 13-May UK Main Market 360.1 (22.6%)
Cornerstone FS 06-Apr AIM 2.2 (24.6%)
Cizzle Biotechnology 14-May UK Main Market 2.2 (33.0%)
Deliveroo 31-Mar UK Main Market 1000.0 (35.4%)
      3,232 23.9%

Source: London Stock Exchange, Refinitiv, AJ Bell 

The combination of surging technology stocks and the frenetic pace of flotations during the coronavirus pandemic, particularly in the US, has drawn comparisons to the euphoria before the dot-com bubble burst in the early 2000s.

To that point, Mould quoted John Brooks, author of The Go-Go Years: The Drama and Crashing Finale of Wall Street’s Bullish 60s: ‘If one fact is glaringly obvious in stock market history, it is that a new issues craze is the last stage of a dangerous boom.’

But he added that the ‘disciplined way in which investors appear to be approaching proposed new listings in the UK suggests that the London market is far from overheating’. ‘As a result, such Brooks’ concerns not be warranted, at least for now,’ he said.

Mould pointed out that the £3.2bn of capital raised in UK IPOs so far this year ‘pales compared to £10bn and £13bn raised in the first five months of 2006 and 2007 respectively’, ahead of the financial crisis. It also lags boom years in 2000 and 2001.

Likewise, secondary issuance ‘so far seems digestible’, as companies which are already listed have raised £9.5bn year to date. That is the highest figure since 2015 but again lags the financial crisis peaks and 2000-2001.  

Money raised on the LSE: January to May

Click here for a larger version of the graph.

Source: London Stock Exchange, AJ Bell

Investment company news brought to you by Citywire Financial Publishers Limited.