London's Big Plan Isn't Working

London's attempt to compete with New York by transforming its stock market into a refuge for fast-growing technology businesses is stumbling as trading volumes decrease and some big-ticket initial public offerings fail.

Recently, Britain enacted new rules to make it easier for technology businesses to go public, loosening the rigid "one share, one vote" restriction and allowing founders to complete a premium listing - which gives them access to the famed FTSE indices - while maintaining significant control.

Following Britain's exit from the European Union, Finance Minister Rishi Sunak promised earlier this year that the new laws would make London more competitive. At the same time, a number of companies announced plans to go public on London's market in expectation of a faster listing procedure.

Weak Performance

According to Refinitiv statistics, 38 businesses listed on London's main exchange in the first eight months of this year, raising $16.87 billion, the most since 2015.

However, some high-profile IPOs, such as Deliveroo and THG's debut last year, are trading significantly below their initial public offering pricing.

  • THG's stock has dropped 65% since its initial public offering in 2020
  • Meanwhile, Deliveroo, which Sunak hailed as "a great British success story" at the time of its IPO, is down 35% from its IPO price
  • Alphawave, a chipmaker, is down 50%. Other large listings are also down, with online card retailer Moonpig down 5% and Made.com down 20%.

A Fad?

Meanwhile, BHP Billiton and Ryanair have stated their desire to delist from the London Stock Exchange.

All of this increases the need to attract new businesses, but bankers and experts feel that looser restrictions have attracted businesses looking to cash in on a passing fad.

Investors will be even more skeptical when they return in the new year, according to one senior equity capital markets banker, who believes that this year's performance would inevitably affect the market for IPOs in 2022 and beyond.

BENCHMARK'S TAKE

  • The post-COVD and retail-driven investing boom of 2021 enabled many money-loosing company to reach new heights
  • As retail activity slows down and inflation decreases the present value of future cash flows, unprofitable companies see their valuation compress
  • In these times of increased uncertainty, London-listed growth stocks have a hard time attracting new capital as investors seek refuge in larger and more stable bets
  • We expect this trend to continue and are not seeking additional investments in London-listed stocks

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by João Barbosa on Unsplash.