Dozens of companies have floated their shares on the London market this year, with mixed results. So who have been the winners and losers?
2014 has been dubbed 'The Year of the IPO' (initial public offering) by some, as dozens of businesses have rushed to list their shares on the London Stock Exchange (LSE). This has led to a flood of new shares hitting the market from household names such as the AA, Poundland and Pets at Home.
Boom times for new shares
According to market-watchers S&P Capital IQ, 67 companies raised £13.6 billion by listing in the UK in the first five months of this year alone. Last year, the sum raised over the same period was a mere £3.6 billion.
However, as markets start getting red-hot, cautious investors begin worrying about bursting bubbles. What's more, while high-profile IPOs such as Royal Mail's market debut last October have delivered bumper returns, other floats have proved to be flops.
Indeed, some market analysts are warning that the flood of companies coming to market has created 'float fever', making share prices too frothy.
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IPO winners and losers
To find out how well investors have done from recent IPOs, let's review some recent flotations to see how their shares have performed since floating. These 10 companies have all listed in London since October 2013, when the float of Royal Mail saw shades of the 'privatisation fever' seen in the Thatcher years of the Eighties and Nineties:
|
Company |
Business |
Market cap (£bn) |
Float price |
Price high |
Price today |
Rise/fall to date |
|
Royal Mail |
Postal services |
3.3 |
330 |
618 |
479 |
45.0% |
|
Merlin Entertainments |
Theme-park operator |
3.2 |
315 |
392 |
370 |
17.3% |
|
Poundland |
Discount retailer |
0.8 |
300 |
402 |
342 |
14.1% |
|
Zoopla |
Property website |
1.0 |
220 |
255 |
251 |
14.1% |
|
TSB |
Banking |
1.3 |
260 |
300 |
289 |
11.3% |
|
The AA |
Motoring and insurance |
1.4 |
250 |
260 |
256 |
2.3% |
|
Just Eat |
Take-away website |
1.5 |
260 |
298 |
258 |
-1.0% |
|
SAGA |
Finance and tourism |
2.2 |
185 |
195 |
179 |
-3.2% |
|
AO World |
Online retailer |
1.2 |
285 |
275 |
266 |
-6.6% |
|
Pets at Home |
Retailer |
1.2 |
245 |
267 |
202 |
-17.6% |
Notes
1. Data from Yahoo Finance UK
2. Shares sorted by gain/loss to date
3. Share prices rounded to the nearest penny
As you can see, by far the biggest winners from the bumper crop of IPOs are buyers of Royal Mail shares, which are 45% above their October float price of 330p a share. Even better, investors who bailed out when the postal operator's share price hit 618p in mid-January could have banked a profit of 87% in just three months.
Another successful give-away was the listing of Legoland owner Merlin Entertainments last November. Floated at 315p, its shares peaked at 392p, up almost a quarter (24%), and are ahead more than a sixth (17%) as I write. Other 2014 listings to produce double-digit returns for investors so far include those of discount retailer Poundland (+14%), property website Zoopla (+14%) and ex-Lloyds bank TSB (+11%).
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Float fever wears off
At the other end of this scale, we have five businesses whose IPOs have brought minimal gains or even substantial losses for new shareholders.
[SPOTLIGHT]Motoring group the AA listed at 250p/share in late June and, since then, its share price has dipped as low as 225.5p, while never climbing above 260p. AA was sold by a consortium of private-equity companies and it seems like these sellers got a pretty full price for their asset.
Shares in take-away website operator Just Eat got off to a decent start, rising from their offer price of 260p to a high of 298p (up 15%). However, they now languish at 258p, 1% below their list price. Likewise, shares of SAGA (-3%), AO World (-7%) and Pets at Home (-18%) have all left new shareholders nursing losses on paper thus far.
Beware of owners selling at the top
In the first six months of 2014, companies worldwide have raised around £260 billion from sales of new and existing shares. This is the highest total for a first half of a year since 2007 -- just before the global financial crisis sent share prices crashing.
When it comes to buying into IPOs, would-be investors should always remember that a company's current owners aim to bank the very best price for their shares. In addition, there is strong 'information asymmetry', as sellers know far more about a business, its health and prospects than would-be buyers.
There is always a rush of flotations during boom times, with some firms coming to market just before share prices start heading south.
Another concern is that several flotations have been pulled recently, including fashion retailer Fat Face in May and student-accommodation provider Liberty Living last week. In some cases, IPOs have been abandoned after over-ambitious valuations led to poor demand from possible investors, forcing owners to drop plans to list in London.
Wise investors should tread carefully when buying newly-listed shares, as several are certain to disappoint. In particular, history suggests that buying from private-equity and venture-capital firms can be risky, because these professional experts look to sell businesses when markets (and share valuations) are peaking.
Have you invested in any of this year's IPOs? Let us know about your experiences in the comments box below.
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More on investing:
Beginner's guide to investment trusts
Beginner's guide to stocks & shares ISAs
Beginner's guide to index tracker funds
Beginner's guide to Exchange Traded Funds