Derek Pain: At last, somebody has spoken up for the little guy over floats
Saturday 03 May 2014
I am delighted that a leading stockbroker has complained about the poor treatment dished out to small investors in the flood of flotations now occupying the City.
In days gone by, we small players were invited to participate in innumerable new issues. Indeed, our interest was considered vital and the degree of subscription was regarded as a measurement of success or failure. There are few such solicitations nowadays, allowing sales to easily exclude the retail investor and concentrate on institutional big guns.
Last month I attacked the appalling way many small investors were ignored. Now Keith Loudon, senior partner at influential private-client stockbroker Redmayne Bentley, has felt compelled to voice his dissatisfaction with the present system.
He has complained to Martin Wheatley, chief executive of the Financial Conduct Authority, describing the block on small investors as "deplorable" and adding that any suggestion they do not understand the new issue game is "arrogant".
Rewarding institutions is less troublesome and possibly less expensive than offering a full-blown, new-issue process. But advisers could be doing a disservice to the floating company. It has not been unusual for newcomers to quickly trade below their issue price. Could such a disappointing result be because of the failure to include small players? Maybe. They are more loyal than institutions. And there is also the possibility they are reluctant to chase shares in the after-market once they have been ignored.
Still, the forthcoming Saga flotation will embrace small investors. Already 700,000 customers have registered interest in the share sale. The over-50s group, which offers holidays, healthcare and insurance, hopes to raise £550m, capitalising the business at £2.2bn. Naturally institutions will be involved. Saga's parent company also owns the AA.
Now to the no pain, no gain portfolio. Spirit Pub Co, a constituent, rolled out interim profits last week. Exceptional charges, much of them relating to a potential VAT payment, hammered the pre-tax figure. But stripped of the largely non-cash items, profits emerged at £22.1m, up 11 per cent. The dividend is increased by 6 per cent to 0.72p a share.
Sales at its 1,219 managed pubs rose by 4.8 per cent with an 8.3 per cent advance in the first four weeks of the following period. The 445 leased pubs enjoyed a 2.6 per cent turnover rise. The leased estate is composed largely of former managed outlets; average net turnover per pub is around £100,000.
The shares were recruited at 42p nearly three years ago. As I write, the price is 79p, having been as high as 87p. They do appear to be stuck in a rut, although trading has been impressive. The broker Numis has put a 110p target on them. I think it's worth sticking with the group.
I am less certain about two of my long-term loss-makers.Animalcare, the veterinary-products group, is, according to researcher Edison, unlikely to obtain the benefits of its switch from low-margin products to more profitable lines until after 2017. It adds: "The current [share] valuation has yet to capture the potential of this approach". But TEG, the environmental group, is looking more promising.
I intend to deal with these two "culprits" in the next few weeks. I am contemplating selling them but have yet to make up my mind.
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