London IPO Market is Hot

Confirmation that Victorian Plumbing will be valued at £850m ahead of its IPO on AIM this week is further evidence that the new issue market is in rude health. Founder Mark Radcliffe is reducing his stake from 72% to 46% as part of the process as new institutions have backed his online bathroom accessories store. As the largest listing on AIM it is further confirmation that this is a growth market we should be supportive of.

Other companies lining up for a float include payments app Wise (formerly known as Transferwise) as well as maternity specialist Seraphine and Seraphim Space Investment Trust which intends to invest in early and growth-stage space tech businesses. A huge number of further deals are also waiting in the wings.

But why such a rush to float and what is driving the interest?

Inflation jitters aside, market conditions are certainly buoyant and institutions are sitting on a lot of cash to deploy. One school of thought is that for larger funds to gain a meaningful stake in a company the easiest way in is via IPO – even if the valuation might seem ‘full’ at the time the alternative is to build a position over a period of time (which could in itself drive the market price up). The hope would also be that the company would grow into its valuation in time. There is no doubt that most brokers we are currently speaking to are very busy with new issues and secondary fundraising activities.

At Sterling Investments we meet many companies every year and continue to play great emphasis on management teams and their ability to execute, we also look to hold for the longer term. Two recent IPOs we have participated in include Virgin Wines and In The Style – both are growth businesses and are trading at premiums to their listing price.

Research by AJ Bell shows that new issues joining the market this year are up by an average of 24%. In addition, the money raised in the first five months of 2021 is at the highest since 2015. Though its not all plain sailing. High profile and still loss making IPO Deliveroo has fallen significantly since IPO – not helped by negative publicity at the time of its listing.  

The key is to take each investment opportunity on its own merit and remain highly selective. Newly listed companies don’t have the track record of knowing what it takes to be on the market, the duty to manage expectations, and to communicate in a timely and effective way with their investors. They often learn, with time. This means we investors need to invest at a discount to comparable listed companies who have demonstrated track record.

If the valuations are fully captured then there is little point in investing. We continue to be disciplined in a market that is red hot.

Sterling Investments Management Ltd
Lynwood House 2-4 Crofton Road,
Orpington, England, BR6 8QE

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