Inside Track: The new issues market hits the first signs of trouble

David Hellier
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WHAT a difference a week makes. Last week I reported on a piece of research from Deloitte, the business advisory firm, on the storming performance of 10 main market flotations in 2013, including Royal Mail obviously, showing how their overall share price performance had outperformed the wider market seven times.

This week the talk has been more about underperformance amid some signs of nervousness in the new issues market.

The real problems appear quite localised. They are principally in the life assurance sector, where Just Retirement had the misfortune to list its shares on the day before a sales warning from one of its competitors, Partnership, which itself had floated earlier in the year.

Just Retirement shares fell seven per cent on Wednesday while Partnership saw a 16 per cent slump in its shares. Since both companies are private equity backed (Permira for Just Retirement and Cinven for Partnership), such falls can be seen as a warning signal for investors considering whether to buy into private equity-backed groups.

In the past, when investors went on a virtual buyers’ strike in the London new issues market, many blamed what they saw as the greed of the private equity firms for giving investors a reason to stay out of the market.

Some market participants were even talking yesterday of a market fatigue returning to London, but with only 12 flotations there is surely more capacity in the market.

Advisers closing the sale of shares in Infinis, the renewable energy group, last night must have been mindful of the need for caution on pricing. With Guy Hands’ Terra Firma selling a significant stake, it would have made sense to take no chances with this one, despite the strong retail and institutional interest at the price at the middle of the range.

But wider fears for the market are overdone. Indeed one or two investment bankers yesterday were saying that the problems being experienced by Partnership and Just Retirement were almost a welcome reminder for advisers not to get too complacent when finalising floats.

“This has probably made a lot of people sit up and remember that shares can sometimes trade at below the issue price if there are external factors and if the pricing has been a bit on the high side,” one banker said to me.

If advisers inject some cautiousness into their thinking that would be no bad thing. Investors, especially those from the US who want to accumulate European stocks, are still there. But they could easily disappear again.