Are IPOs falling out of fashion?

As Virgin Money shelves plans to list on the stock market and designer Jimmy Choo endures a cut-price debut, James Moore considers the outlook for firms wanting to raise funds

Click to follow
The Independent Online

The bargain basement is not the sort of place a high-fashion brand like Jimmy Choo wants to be found.

But that’s where the luxury shoe maker’s flotation ended up yesterday. The share issue – in which a 25 per cent stake in the company was sold to investors – was priced at 140p, right at the bottom end of the price range.

And investors hoping to turn a quick profit were left disappointed, with the stock enduring a muted debut to end its first day at 144p.

However, while it might have been by the seats of their no doubt fashionable pants, at least Jimmy Choo’s bankers got the IPO away.

Faced with what, until Friday, had been developing into a global stock market rout, Virgin Money abruptly pulled the plug on its market debut, which had been expected to raise £150m.

It said the plans – the listing had initially been slated for some time this month – will be reheated “as soon as constructive market conditions allow” and that the company “continues to progress its plan for an initial public offering”. But, “as soon as constructive market conditions allow” could mean just about anything.

Spain’s Banco Santander has been awaiting constructive conditions for the market debut of its UK arm for years now, although Virgin Money probably isn’t planning to join it in waiting for Godot.

Sir Richard Branson’s bank was, in fact, only following the lead of another so-called “challenger” bank, Aldermore. It pulled its float at the beginning of the week.

It’s true they weren’t helped by the fact there has been something of a glut of bank shares hitting the market. The Government has been successfully selling down the taxpayer’s stake in Lloyds Banking Group, while Lloyds itself has sold off 50 per cent of TSB this year. The most recent sale was last month, and it has to be fully out of the “new” high street bank by the end of next year.

So, with the Government keen to continue selling down Lloyds, there will be an abundance of new banking shares for some time to come.

But it isn’t just banks that are running away from the City as fast their legs will carry them. Miller Homes scrapped its plans to float a couple of weeks ago, leading to speculation about what might happen to the projected IPOs of McCarthy & Stone, which specialises in retirement homes, and Cala Homes. The estate agent Countrywide is also now not expected to test the water until the new year at least.

British Car Auctions, owner of webuyanycar.com, is said to be monitoring the situation, but don’t expect anything to happen soon.

Sources close to the company note that Jimmy Choo was a shade more advanced in its plans than most of the other announced, or rumoured, floats. Which might explain why it got away, while others opt to sit back and wait ... at least until the current turbulence has eased somewhat. The recent float fever could then be quickly revived.

John Millar, head of primary markets at the London Stock Exchange, said: “Overall our flotation pipeline is healthy. People spend a lot of time, effort and energy bringing companies to market, but in most cases they can come back when conditions are more reasonable.

“It’s only if they are in a position where they absolutely have to have the capital for their businesses to grow where that’s not the case; if they are capital constrained.”

Mr Millar says that what makes it tough for prospective flotations in the current market conditions is that money is being withdrawn from European and UK equities by big investors. This means that if fund managers want to buy into a new company, they will have to sell out of something else to raise the funds. Selling an established company whose story and management you believe, in  favour of a newcomer, is not an easy thing to do.

However, he added: “The correction was probably to be expected given the geopolitical outlook ... But these things are cyclical, and to some extent seasonal as well. So it will come around and companies will then be able to re-heat their flotation plans.”

David Buik, Panmure Gordon’s market commentator, said the market looks “as if it might be suffering from an acute dose of indigestion”. But he added: “That does not mean the IPO market  is no longer attractive. It just means that investors are price and value sensitive – in other words, they are looking for a snip from big company offerings. They also want these IPOs to come on to the market when conditions are positive, if not at least benign.”

Of the Jimmy Choo listing that did get away, he said: “Jimmy Choo raised just £545m. It has an international flavour and would have some appeal to a specialised investors’ market, but its price hasn’t exactly leapt like the proverbial grilse – 142p at time of writing.”

And that’s likely to be the way of things for some time to come. While the markets staged a rally on Friday, it will take more than a brief bounce for companies to start knocking on their banker’s door with reheated listing plans in their briefcases.

Comments