Best to keep hold of those hard hats

David Hellier
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Hang on to those hard hats for a little bit longer. To the relief of all concerned in the financial markets, yesterday saw stocks rally in most parts of the world. But these are anything but safe times.

In Europe rumours of some form of ban on short-selling, confirmed late last night, lifted stocks. Such a ban was introduced – to no obvious benefit – during the financial crisis in 2008-09. The crackdown in four countries underlines the nervousness of regulators, who are in the end powerless in the face of market meltdown.

Meanwhile in Paris the giant bank Societe Generale seems to be blaming the dramatic swings in its share price on anything but its own financial position; specifically it has asked the authorities to discover whether rogue traders might be profiting on the back of false rumours.

Of course there might be merit in its complaints: but these are certainly troubled times for France and some of its under-pressure banks.

Caveat Emptor

When buyers no longer trust sellers there is usually only one consequence; the partial or total closure of a market.

And that is more or less the situation we have now in the market for IPOs, with the industry bible IFR yesterday focusing on deals in Poland and Turkey in its latest bulletin, although there has been some action in Hong Kong and the US too.

In the US five IPOs have recently been pulled, but in the UK there are not even five IPOs to pull. The bumper flotation of Glencore now seems many moons ago.

In such a climate there is inevitably chatter about previous flotations and reflection on how well (or badly) various stocks have performed since they came to market.

There have been some well known flops, such as Perform and Promethean World in the UK, where a dismal share price performance post flotation has hardly endeared investors to new company issues.

Last week’s profit warning from the Copenhagen-listed jewellery group Pandora, less than a year after its flotation, only deepened the wounds of fragile investors.

Yesterday there was some focus on Ocado, the on-line grocery group that floated last year in a blaze of controversy, with many accusing the banks handling the issue of chasing too high a price.

Those banks justified the sky-high rating of the stock on the grounds that its revenue projections were very punchy.

A research analyst from one of those banks, Goldman Sachs, has now shaved three percentage points from her revenue target for 2011, from 23 per cent to 20 per cent, citing capacity constraints. This has prompted rivals to snipe again at the original 180p flotation price.

But comparisons between Ocado and, say, Pandora, are not helpful. Ocado’s current inability to grow revenues as fast as it had hoped is not due to customers falling out of love with the product. It has a genuine capacity issue, preventing it from meeting demand from its service.

Solving the capacity constraint involves investing in other storage and distribution sites, which is a risky business but an achievable objective. Ocado might well turn out to be the success its backers intended, but it is clear this story is a long-term one.
• Allister Heath is away