NEWLY listed shares in London outperform the wider market by 10.5 per cent in the first year according to a new study, sharpening the investment potential of the current crop of firms seeking a listing.
Newly listed shares, sold through initial public offerings (IPOs), also outperform their more established rivals over the first six months – by 11.5 per cent – and by seven per cent in the first month after floating.
The statistics, compiled by Capita Asset Services, show that on average new listings rise 5.7 per cent on the first day of trading, outstripping the wider market by 5.4 per cent.
The figures will provide justification for fund managers who have bought into the recent spate of companies listing in London this year.
“Our research shows investors should be confident about buying into new issues, as long as they do their homework. Pricing is paramount,” said Capita Asset Services shareholder solutions boss Justin Cooper.
“Leaving too large an upside for investors suggests companies have undersold themselves, which can be very politically sensitive if the owner is the taxpayer, as the Royal Mail example shows.”
The study found the IPO bounce is subdued over the longer term, with recently listed companies outperforming the market by less than four per cent five years after listing. The study examined 10 years’ worth of IPO data to arrive at the conclusions.
The figures come amid a soaring new issues market in London.
Pets at Home took a tumble on its first day of trading this month, falling nearly three per cent, but has recovered since.
Just three in ten newly listed company shares fail to beat the wider index in the first month after they float.
“Overpricing means a bad start for the stock, alienating investors from the outset; a bad way to kick off your investor relations campaign,” Cooper added. “Broadly, companies seem to have been getting it right.”