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Listings offer few wins for investors in first year -Kleinwort
November 4, 2013 / 3:45 PM / 4 years ago

Listings offer few wins for investors in first year -Kleinwort

* British IPOs typically fall below offer price a year on

* U.S. stock market IPOs fare better, boosted by techs

* Global listings market in recovery phase

By Sinead Cruise and Kylie MacLellan

LONDON, Nov 4 (Reuters) - Investors wooed by 2013’s strong British stock market listings forget the risks of backing debut share sales at their peril, as data from the past decade shows their support is rarely rewarded within a year of companies going public.

Figures from private bank Kleinwort Benson show that on average UK listings underperformed the FTSE All Share index in the 12 months after debut in 7 of the last 10 years.

European flotations have proved only marginally better, lagging MSCI Europe in six years from 2003 to 2012.

Twelve-month performance is the first major milestone long-term investors look at when considering the success or failure of any single-stock investment.

Asset managers who invest cash for pension funds and insurers are among the largest groupings of IPO buyers. They typically invest with a five-year-plus horizon but some of their clients assess whether to put new money into funds on the 12-month timeframe.

“It’s tough to win in an IPO,” Gene Salerno, Kleinwort Benson equities head, said.

The privatisation of Britain’s Royal Mail, now trading 70 percent above its offer price, was an anomaly in a market dominated by entrepreneurs or private equity firms who push for highest possible prices when they cash out, he said.

While most of 2013’s European and UK listings were trading above offer price, performance is being buoyed by overall market sentiment as well as company specifics, Salerno said.


U.S. stock market flotations have fared better than those in Britain and Europe, with IPOs outperforming over the S&P 500 index in six years during 2003-2012, Kleinwort says.

Klaus Hessberger, co-head of EMEA equity capital markets (ECM) at JP Morgan, said this was likely to be due to the greater level of activity in the U.S. and because the market is dominated by technology listings, which often do well.

The larger pool of buyers and the trend for company owners to sell small stakes on their market debut has also helped to create a livelier after-market and faster positive returns.

Sam Dean, co-head of global ECM at Barclays said: “It’s a generalisation but...historically U.S. issuers have had a healthier attitude to IPOs, thinking of them more as an entry event to the public markets rather than an exit event.”

“That’s one of several factors which contributed to the terrible IPO period Europe saw from 2009-2012. But lessons have been learned and there is a much better approach now from almost all participants,” he said.

In Europe, fast-growing firms have put listing plans on ice since the 2008 financial crisis began, rather than sell stock in a bearish market. Many of those who did come to market were firms running out of funding options as banks withdrew lending.

Kleinwort’s data was weighted by market capitalisation, meaning some years were skewed by unusually large, weak floats.

In Britain, 2011’s 30 percent IPO underperformance versus the index was driven by the record $10 billion listing of commodities trader Glencore, now Glencore Xstrata.

Glencore accounted for about half of all capital raised from listings on the exchange’s main market that year but it has not traded above its 530 pence offer price since 2011.

This year’s IPOs have so far fared better, with half of the 10 biggest deals trading at least 10 percent above offer price.

Barclays’ Dean said 2013 is feeling similar to 2003-2004, when IPO business had started to pick up after the dot-com crash. The data showed these were two of the years that British IPO returns outperformed the index.

Bankers said vendors were pricing sales realistically, encouraging investors to respond favourably towards IPOs, carefully selecting which they will back and at what price.

But Jeff Morris, U.S. equities head at Standard Life Investments, warned that may not last. A dot-com style boom would return one day, followed by a repeat of the overvalued sales that preceded the crash, he said.

“Towards the end (of the tech boom), we saw stuff that was so early stage it simply didn’t belong in the public market and stuff that was so spurious you had to steer clear.”

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