SPECIAL INVESTIGATION | CITY AT WAR
SHARES in newly-listed companies in London have failed to match the performance of the FTSE All-Share index since stocks began to recover from the financial crisis, rising an average of just 10 per cent compared to the 50 per cent increase seen on the rest of the index.
According to the Bloomberg IPO index, London firms making their debut on the FTSE have been lagging behind the rest of the market since June 2009.
The index tracks the share price of newly floated firms for the first 12 months after they list.
Only one of the eight companies that have floated in London this year is trading above its initial offer price, according to data provider Dealogic.
In the US, 37 of the 66 floats so far this year are trading at a premium to their listing price.
Nasdaq-listed drugmaker Endocyte is the best-performing IPO in the US so far this year, currently trading at about 93 per cent above its offer price of $6 per share.
Underlying the slack performance in the UK is a tense stand-off between financial firms, as revealed in City A.M. yesterday.
As our special investigation revealed, a group of banking consultants, such as STJ Advisors, claim that bulge bracket investment banks are talking down the price of some flotations. Conversely, investors think IPOs are being priced too high.
“Are we being greedy as investors demanding those discounts? I don’t think so,” said Henry Dixon, fund manager at investment house Matterley.
“You have less of the company’s history available to you and the odds stacked against you as the buyer. You do need to demand a discount.”
He added that banks were worried they would fail to win business if they recommended listing a firm at a discount to its competitors.
“You aren’t going to win a pitch for a company saying they will list at eight times earnings,” he said.
The battle raging between the financial firms was first exposed by BlackRock, the world’s largest investor, after it sent an open letter to investment banks hitting out at “unrealistic” valuations.
Capital markets partner at PricewaterhouseCoopers Richard Weaver said: “The stats tend to back up the view that the system is not working as well as it might.
“Of course you can have prevailing market conditions making it difficult to get offers away, regardless of the best efforts of all concerned. But clearly the BlackRock letter and responses suggest a more underlying lack of trust between what you can broadly call the buy side and the sell side.
“Inevitably, you’re going to get situations where you can’t please all of the people all of the time.”
Our special investigation in yesterday’s paper