Time to take Stock of the IPO market - Editor’s Letter

David Hellier
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Those hoping the resurrection of the Virgin Money flotation might lead London’s initial public offering (IPO) markets into an end-of-year revival should take a read of yesterday’s statement from Stock Spirits Group, the Polish vodka maker that floated in London just over a year ago.

Shares in Stock Spirits yesterday tumbled more than 25 per cent to below their issue price of 235p, as it revealed it had been hit by severe competition in its Polish market which has put “considerable pressure on margins” and which will hit expected earnings by between €3-5m.

Not that that will worry Stock’s private equity owner Oaktree Capital Management, which collected £182m in the flotation last October and then sold its remaining stake in April, raising another £203m.

Those outside investors who bought at the time of the flotation, however, will not be feeling so lucky unless they sold out in recent months when shares drifted higher.

Advisers to Stock Spirits, which included JP Morgan, Nomura and STJ Advisors, argue that a year’s a long time in a small company’s life and that things happen to change a group’s valuation.

But fund managers already sceptical about the prices at which private equity-backed companies come to market will only feel their worst fears are being confirmed after something like this. There will be no return to the heady days of the first half of the year, when the IPO market was in full swing, until institutions feel they’re getting good value for money again.

The decision by Virgin Money’s backers yesterday to reduce the value they’re seeking is a move in the right direction. But we’re a long way from restoring greater confidence in new issues just yet.

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