I was sitting with an investment banker from one of the City’s bulge bracket banks yesterday who was describing the performance of London’s new issues this year as “broadly positive”. Of course, this statement is true, as far as it goes.
But there have been some well publicised cases, such as Saga and Card Factory, where shares in these issues traded for weeks after a flotation below the issue price.
The most recent example of a flotation disappointment is Intelligent Energy, which for 10 days after its stock started trading suffered from a successive fall in the price of its shares.
By Monday this week, its shares had fallen from an issue price of 340p to 211p, proving embarrassing for the bookrunners at Canaccord and Barclays. By all accounts, the company has huge potential, developing fuel technology across three mass markets, with a major backer in the form of GIC, Singapore’s Sovereign Wealth Fund, which bought a 12 per cent stake in the issue.
So, what went wrong? Did Rothschild, the company’s independent financial adviser, and the company itself hold out for too fruity a price? Possibly, but this is a concept stock that is notoriously hard to value. There also seems to have been something technical going on. Intelligent Energy pre-float had a shareholder base of around 300 investors, many of whom had bought in at a much lower price.
Some of these were locked in at the time of the float, others weren’t.
The problem appears to be that at least one of the original unlocked-in investors seems to have started selling its holding almost as soon as dealings began, but in an uncoordinated way that freaked the market. Around £12m in share volume knocked around £200m from the group’s market capitalisation.
Advisers not on the deal can’t quite understand why this potential seller wasn’t either locked in or instead allowed to sell entirely ahead of the float. Surely one of the anchor investors could have been persuaded to take on a bit more stock or even the public offer, which raised only around £55m, could have been increased? That only works if the seller had shown its hand.
By Monday, the company and its advisers went into emergency mode in an effort to limit the embarrassment. It appears that the advisers have found buyers to soak up the sellers’ stock since the company’s shares have had two days of edging up rather than plummeting.
The group’s shares closed the day yesterday at 234p, still well down from the 340p issue price. Somebody should be asking whether the worst of the share price movements could have been avoided.