Inside Track: Independent analysts don’t always say what you want

David Hellier
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FOR several months now I have been arguing that an understanding of the new issues market would be enhanced by the presence of independent analysts, writing research about companies coming to market ahead of the first day’s trading.

Most of the recent London flotations have gone ahead with no research from any bank that is not already working on the deal as an adviser or bookrunner.

Independent analysts have been shut out; they are already not being paid for their research and they have generally been excluded from presentations for investors.

With connected parties not allowed to publish research until a certain time after the flotation, this leaves a period during which there is effectively a research blackout.

The usual fear is that a bank that misses out on working on a flotation has an incentive to influence its research team into being negative on the stock, in the hope of picking up business from sellers once the shares have started trading.

Normally the lack of independent research doesn’t matter so much because the majority of shares in a new issue get taken up by institutions that can either do the research themselves or pay somebody else to do it.

With the sale of the Royal Mail bringing interest from 700,000 retail investors, there’s been a laudable desire to bring unconnected analysts into the fold, and an investor presentation for such people was held just a few days ago.

At least two research notes have been published, from Panmure Gordon and Canaccord Genuity, valuing Royal Mail at a far higher price than the banks advising the government have done, causing Vince Cable to defend himself from the charge he is selling the group too cheaply.

It’s not easy to say whether the independents or the banks advising the government who have got this correct. But independent analysis helps investors and politicians alike have a lively debate and keeps the process as accountable as possible.

One of the stars at Bank of America Merrill Lynch and London’s equity capital markets, Olly Holbourn, left the bank yesterday on his way to UK Financial Investments, the government department that manages its stake in RBS and Lloyds as well as other banking assets.

Holbourn spent his last day at the bank working on the sale of Royal Mail shares, completing a successful few months during which he has acted for Barclays on its £5.8bn rights issue and Lloyds on its recent share issue.

He will be missed.