Institutions get a stronger hand in new issues

Michael Bow
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THE PENDULUM of power in the new issues market could swing back to institutional investors this summer after a spate of companies floated so far this year sank underwater.

Big name issues in London including Brit Group, Just Eat, AO World and Pets at Home have all fallen below the price they floated at in recent weeks, prompting concerns new issues are being overpriced.

“There has been a fatigue and there’s a reluctance to feel you have to keep buying stocks in the after market,” said Gervais Williams, managing director at Miton Group, which bought into the Brit float last month.

“It’s not a buyer’s strike but there’s certainly great concern. A lot of corporate financiers are looking at the float as the finishing post and that’s not a very good attitude to have.”

“It’s a wake up call and arguably not an unhealthy one,” Zeus Capital joint chief executive John Goold added. “The more floats go underwater, the more discerning institutions will be but fundamentally the market should always be open for great companies floating at the right price.”

Advisers say the high quality of the names coming to market over the next few months bodes well for continued support from institutions, despite fatigue after this year’s record breaking volume of new issues.

“Institutions are simply being a little more selective and focused when determining which companies they will support,” Numis head of corporate broking Alex Ham said. “Appetite to support the new issuance market remains robust.”

Three companies joined London’s swelling ranks of public firms last week – Polypipe, Cambian and Exova – with investors watching the performance of all three closely over the next few weeks.

Names set to come to market this summer include mega-floats Saga, SSP and later in the year TSB.