IPOh yeah: How newly listed companies outperform the market

 
William Turvill
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It has not been a very buoyant year for London's flotation market (Source: Getty)

It has been a tough year for London’s flotation market, with the number of big initial public offerings (IPOs) falling significantly on 2015 levels.

In addition, there have been a raft of high-profile IPOs pulled by companies, which have cited challenging market conditions.

But, according to a new study, the few companies that have completed new listings this year have outperformed the market.

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For the study, Deloitte looked at the 11 main market IPOs that completed in 2016. Researchers defined these as “listings of shares for trading companies (i.e. investment companies, venture capital trusts, transfers from other markets, GDRs, cash shells etc. have been excluded), raising at least £25m”.

Deloitte said these companies’ shares are up, on average, 11.6 per cent in the year, an outperformance of 4.3 percentage points against the FTSE 350.

The trend also plays out over a longer time period. An investment of £1,000 in each of the 63 IPOs launched since 2014 would now be worth £74,017, while a £1,000 investment in the FTSE 350 at each IPO date would have risen to £64,716, Deloitte said.

Read more: Why Biffa refused to scrap its IPO plans despite "fairly tortuous process"

“From our experience, many investors have remained interested in IPOs where both the equity story and the valuation metrics are sufficiently compelling,” said Chris Nicholls, head of IPO and equity advisory at Deloitte.

“This year will be remembered for uncertainty and surprise, conditions that have contributed to a number of stalled listings. However, those that have gone ahead have typically performed well.

“A particular challenge for issuers is how to respond to volatile stock market conditions and to identify what preparations can be made to shorten lead times for a listing. Companies and shareholders need to be ready to move rapidly when a window appears.”

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