Market for flotations sinks as just six firms seek a London listing this year

Investors who like to buy companies when they come to the stock market have been left disappointed as coronavirus puts firms off seeking a listing.

Just six businesses joined the ranks of London’s quoted companies in the first half of the year, data from EY, the consultancy, showed. Four listed on the main market and two joined the junior Alternative Investment Market.

Flotations often appeal to investors interested in smaller companies as they offer the chance to buy fast-growing new firms that have previously been unavailable to DIY participants. They help to offset the companies that leave the market through takeovers or mergers and ensure the number of listed stocks does not diminish.

The number of London listings has been on the decline for the past three years after a high point in 2017, when 95 firms floated. Some companies now choose to remain private as they can raise cash without the need to jump through the regulatory hoops that come with a stock market quotation.

Guy Feld of Marlborough Fund Managers said: “The risk is that good companies with talented leadership keep being lured away by private equity.”

Fund managers tend not to invest in unquoted stocks as they are harder to sell, causing so-called liquidity problems, as was the case with Neil Woodford. DIY investors have little opportunity to buy shares in private companies as fundraisings are offered only to large investors.

Phil Harris from EdenTree Investment Management said there was “no pipeline of new listings” for the remainder of the year as coronavirus had put companies’ plans on hold. However, Mr Feld said there would be a lot of interest when companies did list. Fundraisings by companies already on the stock market have increased this year and investors have backed many of them.

He added: “There’s no doubt in my mind that the money is there for companies with quality management and a strong proposition.”

One example is FRP Advisory, a business consultancy firm. Gervais Williams of Premier Miton, the fund manager, said it was the most significant flotation this year. “FRP listed to raise funds so it could grow,” he said. “As it happens, many companies have suffered and it was appointed to highprofile restructurings.”

The share price has risen from 80p at the float in March to about 120p, a gain of 50pc. The London market has lost 4pc over the same period.

Scott McCubbin of EY said he was optimistic that more companies would list in the second half of the year if the market continued to rise.

However, with the potential for a second wave of Covid-19, the forthcoming American election and Brexit, firms may decide to stay private until uncertainty has cleared.

‘The risk is that good businesses with talented managers get lured away by private equity’