Inside Track: The new issues market drifts into ever choppier waters

David Hellier
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THIS was the week when a sudden reality check intervened in the new issues market. It came after a blissful start to the year that has seen share prices popping, books covered multiple times and investors cashing out most profitably.

The big losers earlier this week were the technology stocks, with shares in AO World, Just Eat and Boohoo all trading at some stage below their issue price.

The nervousness spilled over into the dealings in a block of shares in Sports Direct, which in some circles is seen as something of a technology stock, leaving Goldman Sachs facing an uncomfortable position after taking on a £200m plus block of shares.

So far there’s been only limited carnage, with shares in Just Eat and AO World and Boohoo all recovering slightly. The bubble hasn’t burst yet. But the force of the market has made itself known. After last week’s swings, there is quite simply less confidence that everything will turn out alright than there was a week ago.

Today sees Cambian, a private equity-owned provider of specialist behavioural health services, come to market with shares being priced at the bottom of the range.

Cambian is no dotcom darling but a bricks and mortar group with 6,000 employees, 249 facilities, including 23 schools, 35 hospitals and 188 specialist care and day facilities.

According to figures in the pathfinder prospectus, revenues were £213.3m in the year to the end of December 2013 and profits were £7.7m, which was well up on the previous year but down on 2011.

Operating in the sensitive area of mainly children’s and old people’s services as well as mental health, the group does seem to have a decent enough record of quality, although one in three homes failed to be classified as either good or outstanding in a recent Ofsted report into Advanced Healthcare, a Cambian-owned company.

This has been possibly the lowest key new issue this year. Even its intention to float was timed to coincide with Budget Day, guaranteeing next to no media interest.

I suspect we’ll see much more realistic multiples for this IPO than we saw with Just Eat or AO World and hopefully this will be priced sensibly enough to give a good chance of a healthy after-market.

The announcement shortly of a new independent director from the charity sector might bolster confidence on the governance side.

My sense has been that this has not been the easiest of issues to get away and the pricing reflects that. With the market now in choppier waters there are likely to be other groups that don’t even make it this far.