Condolences for Card Factory as market cools for UK new issues

LONDON Fri May 16, 2014 10:35am EDT

LONDON May 16 (Reuters) - Lukewarm demand for shares in British greetings card retailer Card Factory Plc is the latest indicator that interest in European company flotations may be cooling somewhat after a red-hot start to the year.

Having seen the busiest period for initial share offerings (IPOs) since before the financial crisis of 2008-2009, investors may be getting more choosy about the stocks they buy into, forcing a number of companies to withdraw listing plans or scale back the price they are looking for.

With a number of high-profile offerings in the works, ranging from banking group TSB to shoemaker Jimmy Choo, companies looking to raise capital - and the advisers helping them do so - will be hoping any setback is temporary and stock specific, not a broad-brush aversion.

"I think IPO investors have become a bit more fickle," one banker who works on flotations said. "Markets are at all-time highs. Sentiment towards IPOs? Probably not."

Card Factory shares have fallen over 11 percent below their issue price since their London stock market debut this week. The company, owned by private equity firm Charterhouse - and whose flotation was managed by Morgan Stanley, UBS, Nomura, Investec and STJ Advisors - was trading at 199.25 pence by 1421 GMT in conditional dealing.

They had been priced at 225 pence on Thursday, already at the bottom of a previously set price range.

Conditional dealing allows banks and brokerages to trade shares between themselves and stabilize the price of an IPO before the stock is issued to the public markets.

Card Factory's decline is seen by bankers as a negative since companies target an uptick on their debut, to reward investors who risked their money by buying into the offering, while not underpricing the stock.

A rise of 5 to 10 percent is seen as ideal by many investment bankers.

STRONG MARKETS

For companies like Card Factory, flotations have become more viable this year because Europe's IPO market has experienced a surge in activity.

London has been a particular hot spot as firms seek out capital from yield-hungry investors, and private equity groups cash in on strong equity markets to exit investments made before the crisis.

UK-based retailers Poundland, Boohoo and Patisserie Valerie have all floated in recent weeks.

Proceeds from European IPOs have risen 248 percent in the year so far against the same period last year to $24.9 billion, the strongest level since 2007, Thomson Reuters data showed this week. The UK has seized the lion's share, with $7.4 billion raised in 30 listings.

Yet there are signs that investor appetite may be waning.

Last week Dutch-based Domus, which holds properties in the Czech Republic, withdrew its planned Amsterdam flotation, citing market and geopolitical conditions.

Israeli digital advertiser firm Matomy, which scrapped its IPO in April after it could not meet UK listing requirements that 25 percent of shares be held by European investors.

Some said that rather than being a general withdrawal from the market, investors were simply being more selective.

Bankers also say the pipeline of prospective new issues remains strong, with the bigger players saying they have between 10 and 20 European listings lined up before the summer holidays, when the market traditionally quietens.

Major names including over-50s holidays-to-insurance firm Saga as well as TSB are seeking to float in coming months and could prove popular.

Elsewhere Europe's largest online fashion retailer Zalando is eyeing a possible listing in the third quarter, while outside Europe China's Alibaba recently published a prospectus for what could be the largest technology debut in history.

"The observation from the trading floor is one based on quality," said Marc Kimsey, senior trader at brokerage Accendo Markets. "We are experiencing an overwhelming response to legacy brands such Saga and TSB." (Editing by David Holmes)

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