Class of 2014: who floated to the top of the pile?

Last year it was discount stores and online fashion. This spring’s crop of retail floats is being led by furniture. They will join a more wary market

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The Independent Online

This time last year the Square Mile was seeking some serious retail therapy, as a host of retailers came to the public equity markets. The ex-Tesco boss Sir Terry Leahy was busy selling the merits of B&M Value Retail, which he chairs, to City investors.  AO.com, the white goods website, was also flavour of the month with analysts. First out of the blocs was McColl’s, the convenience chain.

A year on from the first of that clutch of retail floats and the appetite remains. Several retailers are eyeing a public offering this spring as the stock markets hits record highs. Yet the landscape for retail floats has also changed in some ways.

Last year discounters and online firms were dominant. Poundland’s trip to market was followed by the discounters B&M, Card Factory and Shoe Zone. AO’s soaring debut had the owners of Boohoo and MySale keen to capitalise on the appetite for online companies.

“A lot of retail stocks were taken off the market at the peak of the cycle in 2007,” said Kate Calvert, an analyst at Investec. “Owners then had almost six years where there was no real opportunity to get a sale or float away, making last year an attractive window.”

Ms Calvert said the lack of stocks in discount and online made both sectors appealing to the City. “The scarcity factor definitely helped the valuations of the first few,” she said. “The only way to access online retail previously was through Asos. There’s a clear growth story with online retailers which can grow rapidly internationally.

“Similarly, with discount, the limited access investors had was through Associated British Foods. But then you get a commodities stock, not just Primark.”

So how has the 2014 intake fared? For the discounters, it’s been a relatively stable story. Their private equity owners – Poundland was owned by Warburg Pincus, Card Factory by Charterhouse and B&M by CD&R – had offloaded them to take advantage of the buoyant market. However, the clear growth plan of rolling out rafts of shops across the nation’s high streets has remained appealing against the backdrop of the disruption that Aldi and Lidl’s growth has had in the grocery sector.

The independent retail analyst Nick Bubb said: “The high-profile ones like Pets at Home and B&M tended to be very fully valued and the low profile ones, like Shoe Zone, turned out to be very undervalued. Card Factory was a bit in-between: it suffered from the ‘private equity’ perception problem. But the strength of the business model eventually got through to investors.”

While Shoe Zone has proved a stronger performer, the considerably larger Poundland has charmed the City. Its shares have risen by almost 30 per cent during the year and were propelled upwards rapidly earlier this month when it swooped to snap up rival 99p Stores in a £55m deal. The merger, if it makes it through the competition regulators, will spur Poundland in its mission to open 1,000 UK stores,  while its increasingly bold roll-out strategy in Spain has aided the shares.

A number of the stocks, including B&M and Card Factory, enjoyed a steady build-up in popularity towards the end of the year. One analyst explained: “The market was expecting an interest rate rise last summer, meaning being overweight in retail stocks was not ideal, but then when expectations were pushed back investors were calmed.”

For the online retailers, the first year of life as a public company has been less straightforward. While AO’s story – from starting as a £1 bet made by founder John Roberts in a pub to building an empire branching into new products beyond whitegoods – was naturally appealing, its IPO proved controversial. The shares spiked more than 40 per cent on its opening day but did not begin to rebuild again until November. However, shares plunged today on a profit warning after poor trading. 

The online fashion retailers suffered a worse fate. Investors had pinned their hopes on discovering the new Asos, following a decade of meteoric growth for Nick Robertson’s fashion firm, but three profit warnings caused a domino effect on the share prices of Boohoo, MySale and Koov.

The flash deals site MySale, which made an embarrassing start to public life with a “fat finger” pricing error, has suffered the biggest fall in share price after ripping up its bring-to-market strategy – of growth in the US and South Korea – and issuing a profit warning. “The product just isn’t right yet,” Panmure Gordon analyst Mike Stewart said. “There is definitely room for one big UK flash sales retailer – consumers love a brand and a bargain so the model is right, but their clothes are dated.” Mr Stewart is similarly scathing of Boohoo, claiming a profit alert caused by the “blip” of the UK’s warm autumn should not have damaged expectations for the next two years.

The two other debutants – McColls and Game Digital – have suffered in a tough market amid the supermarket price war and the gaming hardware cycles, respectively, although Game’s shares have recovered from a nightmare Christmas.

For 2015’s crop of retail IPO hopefuls, a clear trend towards furniture has already emerged. The Sofa specialist ScS got its flotation away to a respectable reception earlier this month while rival DFS set a price range of 245p to 310p a share this week amid weakening investor sentiment.

The online furniture site Made.com is understood to be eyeing a listing. “The knock-on effect of the supermarket price wars and low fuel prices has been the extra disposable income people have for the home,” Investec’s Ms Calvert said.

The likes of infrastructure group John Laing and tool hire firm HSS have already climbed through the pre-Easter float window, while those with their fingers hovering over the button will be wary of the lessons learnt by the class of 2014.

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