So why are managers so seemingly unwilling to tap into all the new issues hitting the markets? And where does that leave companies wanting to list?
“Managers remain very discerning but the pricing is becoming more compelling as the market stagnates,” said Peter Toogood, investment director at City Financial Investment Company.
Despite more value being left on the table for fresh investors, few are getting involved in a big way, with some IPOs barely raising a flicker of interest. “It’s about one in 10 new issues that are taken up by managers,” said Toogood.
Others disagree and believe we are witnessing a window of opportunity. “IPO demand is very robust now,” said Gareth McCartney, head of EMEA equity syndicate at UBS. “Post-Easter, $6.5bn has been raised in EMEA via 19 transactions – this implies that the window is open.”
Nasdaq noted a frustrating pattern earlier this year where companies were showing plenty of interest in listing but were not willing to pull the trigger, given the market uncertainty. But Nasdaq’s Adam Kostyál sees an improving picture. “While IPO activity has been slower this year, we are seeing a continued interest building up for the second half and 2017.”
Kostyál added that last week Nasdaq had five US listings and in Europe there will be six new listings this week. “This is solid momentum for the listings environment given the current state of the market.”
But is this another false dawn for IPOs thanks to the risk around the 23 June EU referendum, the potential for a Fed interest rate hike in June or July, and with Spanish elections on the radar?
“We are in the midst of a post-Easter sweet spot for issuance ahead of the major event risk upcoming in the second half of June. Investor appetite for liquidity events is good and we have enjoyed a prolonged period of lower volatility with the Vix index below 20,” said McCartney.
Managers want decent returns but risk appetite remains low. Hotel Chocolat gave investors an impressive bounce, up a heady 40 per cent since its IPO in early May. But transaction details reveal some initial buyers may have taken the quick sugar hit and sold out, with a hefty churn on debut.
Other listings in late May, like French furniture group Maisons du Monde and Philips Lighting, have produced smaller returns of less than 10 per cent. The gong will ring for Dong Energy this week in Copenhagen as the Danish government-controlled utility also turns to investors. Timing has been a challenge for Dong, scrapping three other attempts to have its name up in lights in 2006 to 2008 due to market turmoil and other problems.
Nasdaq sees some key trends in sector IPOs. “Our Nordic and US listings pipeline will be driven by healthcare and technology companies. We have seen several biotechnology and enterprise storage or software companies file applications, for example. Financials and consumer brands will be strong as well,” said Kostyál.
Few would say this is a dream market to list in but maybe it is as good as it gets in an environment dogged by malaise. UBS’s McCartney said companies should not delay listings.
But what exactly are investors seeking when it comes to IPOs?
“Two factors resonate strongly in the current environment – demonstrable structural growth and dividend yield. In addition there is demand for stocks which give investors equity stories not available in the secondary market,” said McCartney.