New issues failing to repay investors: Fewer than half of the companies floated this year are now trading at a premium, reports James Bethell

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The Independent Online
MOST companies floated on the stock market this year have made no money at all for investors. With the market as a whole 11 per cent lower than in January, new issues have had to work hard and a worrying number have underperformed by a large margin.

According to Datastream, of the 107 companies to gain a stock market listing in 1994, only 47 (44 per cent) are now trading at a premium. On the assumption that selling costs would eat up the first 10 per cent of any gain, only 29 (27 per cent) of the investments yielded a profit.

The worst performers, mainly high-tech companies, have left investors nursing substantial losses. Almost a fifth of the year's crop of flotations have fallen by at least 20 per cent, with five having already lost half their market value.

Tim Steer, small companies analyst at Smith New Court, believes many of the companies that came to the market this year should not have done so.

He said many of them would have been better advised to raise money from venture capitalists, who have the time to scrutinise investments on a month-by-month basis and contribute boardroom expertise.

Instead, companies were tempted by the relatively high multiples put on companies earlier in the year by the then buoyant stock market. Profits warnings from some recent flotations have underlined the dangers.

Canadian Pizza and the school equipment supplier Nottingham Group both shocked investors with unexpected sales declines shortly after flotation. And profit warnings from United Carriers, Aerostructures Hamble and McDonnell Information Systems sent their shares plunging. These setbacks have reinforced analysts' preference for established companies in traditional industries rather than risky start-up situations and those in fashionable but volatile sectors.

Mr Steer predicts that, after the disastrous share performance of several high-technology companies the City will grow more suspicious of these industries.

The recent spate of stock market disasters has made it difficult for other companies planning a flotation. Tom Kirby, chief executive of Games Workshop, the table-top games manufacturer and retailer which joined the stock market yesterday, found his hopes of raising pounds 20m too ambitious and had to settle for pounds 12m.

Michael Wareing, a partner at KPMG Peat Marwick specialising in new issues, believes that the past two months have confirmed that many of the companies that rushed into the rising market at the beginning of the year were sold on over-ambitious multiples.

Their success encouraged a second wave of opportunistic companies to push for a listing. Many were small and ill-prepared. The result was that several companies had to abandon their plans at the last minute. British Printing Company pulled its float when investors balked at the asking price. Capital Shopping Centres was only 14 per cent subscribed.

Mr Wareing says that advisers - banks and public relations companies - were equally guilty of opportunism. Having seen their reputations tarnished by the failure of some of their proteges, many are now much more cautious about introducing companies to the City.

'Whatever the sector, investors should stick to larger companies, with proven internal strength and a long-term strategy,' he adds.

------------------------------------------------------------------------ BEST PERFORMERS IN 1994 ------------------------------------------------------------------------ Company Proceeds Issue Current % Underwriter pounds m price p price p change Magnum Power 4.5 37 65 +75.7 Henry Cooke Carnell 0.6 18 31 +72.2 Fiske & Co UPF Group 19.3 108 150 +38.9 UBS Limited Midland Assets 2.4 14 19 +35.7 Guinness Mahon Waste Recycling 5.0 50 67 +34.0 Marshall Securities John Mansfield 1.6 3 4 +33.3 Ellis & Partners Dominick Hunter 20.9 200 266 +33.0 Granville & Co GRT Bus Group 21.9 160 211 +31.9 James Capel Inspec 49.5 160 208 +30.0 Morgan Grenfell Trafficmaster 9.8 130 169 +30.0 Allied Provincial ------------------------------------------------------------------------

------------------------------------------------------------------------ WORST PERFORMERS IN 1994 ------------------------------------------------------------------------ DRS Data 15.0 110 36 -67.3 Beeson Gregory Coda Group 25.0 235 85 -63.8 SG Warburg McDonnell Info. 190.1 260 104 -60.0 Baring Bros Maid 12.7 110 52 -52.7 Hill Samuel Aerostruc. Hamble 40.0 120 59 -50.8 NM Rothschild Videologic Group 23.61 49 29 -41.8 SG Warburg Clinical Computing 5.0 124 76 -38.7 Keith Bayley Rogers Chiroscience Group 45.0 150 93 -38.0 Robert Fleming United Carriers 23.0 153 101 -34.0 Lazard Bros Nottingham Group 38.0 155 107 -31 Goldman Sachs -----------------------------------------------------------------