View from City Road: When flotation fades from fashion

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The Independent Online
When fund-managers start sniping at corporate finance departments for over-pricing new issues, you can be sure the gravy- train is heading off the rails.

Legal & General's David Rough fears that good companies will now be put off flotation by a string of flops. The first dealings in four issues yesterday suggest his fears might be justified. The computer software group Azlan, and DFS, the furniture company, struggled to very modest premiums.

Hozelock, a garden equipment group, and Wigmore, a property investment trust, fared even less well, falling below their issue price on first dealings. They join Canadian Pizza and CLM Insurance, which stumbled out last week.

Bringing a company to the market in the week before the Budget was always likely to be touch-and- go, and then there is the hubris of recent issues. Azlan, for example, boasts an impressive growth record but a historic p/e ratio of 27 and a yield of just 1.6 per cent was never going to leave much room for accommodating a shaky market.

Having swallowed more than pounds 3bn of new issues this year, the market is beginning to tire of paying more for untried companies than for quoted peers that have already proved their mettle.

The failure of Wigmore is arguably the strongest signal of an overheated market. Investment trusts traditionally fall to a discount on issue, which is why their sponsors attach warrants to sweeten the pill for new investors.

When one free share for every five bought fails to put a floor under the price, private investors should be even more circumspect about the rest of the year's crop of debutantes.