JUST Eat shares got off to a very decent start in unconditional trading yesterday in a deal that has demolished some people’s reservations about the London new issues market for technology stocks.
Contrary to what a number of experts said at City A.M.’s roundtable on the new issues market last June, London does seem prepared to factor in high growth when it comes to valuing such stocks.
Just Eat made earnings last year of only £14.1m but still managed to attract a valuation of close to £1.5bn after submitting its management, strategy and performance to the rigours of a high-pressured flotation process.
Reaching a high valuation is only the first part of the job, however.
Justifying that valuation and holding it over the medium-term is the next part of the task and only if the group’s fortunes continue in the right direction will the flotation of Just Eat, the first on London’s high growth segment, be seen as a success.
High growth is certainly possible, according to the UK head of the group’s close rival Hungryhorse.co.uk. “I think there’s sufficient potential for growth,” says co-founder Shane Lake.
Others, though, like CMC markets’ Mike Hewson, worry about the valuation of the stock. “When you compare this with something like Domino’s Pizza you really must think it’s on a pricey valuation.”
If Just Eat disappoints during its early days as a listed company, there will be many who will be only too happy to criticise the new issues market as a whole, just as they did a few years ago after the shares of Ocado and Sports Direct traded for months after their issue at below offer price.
The banks who brought the Just Eat deal to market, which include the niche investment house Oakley Capital, the investors who yesterday said they would be selling part of their holdings and the London Stock Exchange, will all be hoping this deal goes well, not just for the sake of Just-Eat, but for the sake of London as a whole.
BELOW THE RADAR
While Just Eat has been hogging much of the limelight, the much lower profile Cambian has been quietly getting on with a flotation of its own.
Cambian, a provider of care homes for children and adults with learning difficulties and mental health issues, is working on a deal announced on Budget Day that could value the group at around £500m.
Advanced Childcare, where one in three homes failed to be classified as either good or outstanding in a recent Ofsted report. is a Cambian-owned company. Ho hum.