Inside Track: Sparkling flotation returns help to attract new investors

David Hellier
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The favourite retort from fund managers who staged a near full-scale buyers’ strike for a few years on new issues in the UK was that they too often felt short-changed. Andy Brough of Schroders famously said that kids expected party bags when they went to birthday gatherings and that’s what fund managers had in mind when they backed a relatively untried company floating on the stock market.

New research from Deloitte, the business advisory group, shows that Brough and others of his ilk are getting more of what they want now. It shows that £1,000 invested in shares in each of this year’s ten UK Initial Public Offerings (IPOs) would have returned £13,520 by the end of October. The return is seven times greater than if they had invested in the FTSE 100 index instead.

We all know about Royal Mail (up 69.7 per cent) since flotation; but there’s an even larger rise for the housebuilder Crest Nicholson (up 75.9 per cent). Of the ten only eSure (down 21.7 per cent) and Stock Spirits Group (down 3.4 per cent) are showing losses.

The improved share price performance of newly-listed companies, be it because of deliberate cautiousness over pricing, luck or other factors, has also encouraged retail investors to step back into the market.

Thousands of them did so with Royal Mail but there’s also been interest in less obviously consumer friendly companies coming to market. When Guy Hands’ renewable energy group Infinis announced its decision to float, it signalled a determination to attract retail investors to a stock that will yield between six and seven per cent.

Infinis is hoping around 10 per cent of its stock will be snapped up by retail investors, an achievement that would not have even been contemplated two to three years ago. “Whenever a company thinks about floating now, there is always an active discussion about a retail offering,” one banker said yesterday.

In the past the bulge bracket banks have not had much interest in the retail market. It’s seen as too finnicky and not terribly easy to control.

But they’re increasingly being forced to consider the option, which is in any case easier to handle thanks to the fact that mostly everything’s now processed online.

Barclays and Solid Solutions, who have a joint marketing arrangement, have been involved in Infinis, Royal Mail and Direct Line together and will surely hope to act on the upcoming sale of the government’s shares in Lloyds Bank.

So far, so good. The temptation now will be to take this new interest for granted and for a seller to spectacularly overprice. That’s when the recovery in IPOs will really be tested.