Europe’s stock markets feed on London’s float famine
Equities worth €4.5bn listed on the Continent but only €300m launched on the LSE,
The UK stock exchange has fallen further behind its European counterparts after a resurgence of new listings on the Continent put London in the shade.
In a bounceback of initial public listings (IPOS), there were €4.5bn (£3.9bn) of new listings in the first quarter, but London contributed just €300m of that total, PWC, the accountancy firm found. That will do little to dispel concern that the once-dominant London Stock Exchange (LSE) is in trouble as its float famine continues.
The German, Swiss and Greek stock exchanges outpaced London’s, as an IPO freeze caused by gloomy economic data and high inflation started to thaw.
The blockbuster flotation of Galderma, the skincare brand, on the Six Swiss Exchange led the charge. It raised €2bn.
Deutsche Borse, long considered the main European rival to the London exchange, also attracted two major new debuts. Renk, a German manufacturer of tank engines, raised €450m, while Douglas, the German perfume retailer, raised €890m after its owner, CVC Capital, cashed out. Athens’ Eleftherios Venizelos International airport also listed.
The blockbuster haul left London further in the shade, with the listing of Kazakh airline Air Astana the best on offer at €324m.
Vhernie Manickavasagar, PWC UK Capital Markets’ partner, said the continental boom had been led by domestic firms, and London remained the choice for international companies.
“London is still the market people look to outside of their domestic market,” she said. “The IPOS you’ve seen in Europe are domestic IPOS on the domestic market. Air Astana shows that London is still the market that Europeans go for when they want an international listing outside of their domestic market.” She added that the revival on the Continent could prompt UK boardrooms to consider a float.
“People are now seeing that the markets are bouncing back but companies are only now starting to think through their processes, which means that they are not going to come through until the end of the year.
“We are also going to have some significant changes (in London), which people are watching, and you’ve not had that in the European markets to the same extent.”
Better economic data have encouraged more companies to tap the stock market, making the lack of floats in London even more puzzling. High stock market volatility puts companies off floating as they fear the IPO will go badly, but this has fallen recently.
Lower inflation and more predictable interest rate expectations have dampened volatility, opening the door for more listings.
One City broker said the current level of IPOS in the London market was “woeful” and blamed the drought on the lack of demand from UK fund managers. The main London market welcomed just two new listings, making it the worst quarter in terms of volume since 1995 when the data company started collating figures.
“There is no shortage of companies that could come and IPO on the exchange,” the broker said.
“You only need one or two big listings to start to get the dominos falling. The issue is with the demand. The good companies aren’t coming because [the fund managers] won’t back them. They won’t come to market until the demand side is fixed.”
Jeremy Hunt, the Chancellor, has put forward a raft of reforms to try to fix the problem.
The Edinburgh Reforms, a package of measures to remove onerous listing restrictions on companies, have been coupled with supply side changes, such as the British Isa, to try to lift the gloom hanging over UK stocks.
Allocations to UK equities have been on a steady decline for several years. Estimates from Numis suggest that in March there was another net outflow from UK equity funds of around £2.6bn, taking the total for the year to £4.6bn. That means 2024 is on course to become another period of net outflows, the ninth consecutive year since 2015 when more money has left UK equity funds than has been added.
When less cash flows into UK equities, valuations fall, which ultimately makes the UK market a less attractive place to list a company.
The UK valuation gap has been made even starker by the runaway success of the Nasdaq, where the “Magnificent Seven” – Amazon, Apple, Alphabet, Meta, Microsoft, Nvidia and Tesla – has made London appear even more unattractive.
However, Gervais Williams, a City fund manager who heads equities at Premier Miton, said a string of IPO duds had left many sceptical about the quality of new listings.
“We’ve had a series of pretty rubbish IPOS,” he said. “Whatever the reason, it isn’t working as well as it could, especially given that supposedly we’re high grading the IPOS, given there aren’t that many of them.”
Significant IPOS in the London market, such as CAB Payments, the payment processing and foreign exchange business, have burned many fund managers. The stock, seen as a possible catalyst for a listings revival last year, has fallen 60pc since floating in July. Looking ahead, the prospects of London attracting significant IPOS in future looks uncertain. Unilever’s ice cream division could list in London, but Hein Schumacher, its chief executive, recently said he favoured Amsterdam. CVC, the private equity firm behind the Six Nations rugby tournament, is also likely to list in Amsterdam rather than London. Flutter Entertainment is due to change its primary listing to New York from London following similar moves from companies such as Tui, which shifted its main listing to Frankfurt.
Last week, analysts at Deutsche Bank said FTSE 100 commodity trading giant Glencore could be the next company to transfer to New York.
However, Williams said there was fund manager demand for good firms, citing the possible float of Raspberry Pi as a possible catalyst for more issues. “I don’t think the market is entirely closed at all,” he said. “You’ve got to have some great issues and I think if you get two or three good issues then the market will open up.”
‘I don’t think the market is entirely closed – if you get two or three good issues, it will open up again”