Bargain basement London
BRITISH companies are crashing out of the London stock Exchange like ten pins being knocked down in a bowling alley. Quite literally. ten Entertainment is the latest listed mid-cap to be bowled over with a knockout strike from Us private equity firm trive Capital Partners.
the offer is all cash, valuing ten’s shares at a premium of more than a third, and nearly a quarter higher than levels reached just before the pandemic.
Understandably, ten’s directors have given a resounding thumbs up to the £287m offer while nearly half the group’s investors have already given their blessing.
Ten also made it abundantly clear how frustrated it is with the persistent valuation discount the shares have been trading at compared to their market peers.
This, combined with poor liquidity, has made it more difficult for investors to exit.
Unfortunately, ten’s bosses are spot on. the country’s second biggest bowling operator, with more than a 1,000 lanes, is another classic example of a stock which has, despite great financial results, been rated too cheaply. Caught in a Catch-22 situation, there has been little liquidity in the shares, which means ten has been under the radar for pension funds, and indeed, retail investors. But not for the American private equity guys – they can sniff out a bargain a mile away.
there are more strikes to come. holiday giant tui travel is considering switching its primary listing from the LSE to Frankfurt.
tui has good reason for doing so. Over the last few years the company has attracted a greater proportion of German investors and there is more trading on the Frankfurt exchange. By switching to a full Frankfurt listing, tui reckons its share valuation would improve.
that sounds entirely logical. Yet such a move would dent London’s attractiveness. the UK’s public markets are already reeling from a number of big companies migrating to the Us to list, while Arm holdings chose New York rather than London to float.
Neither the loss of ten nor tui marks the death knell of London, which still has more than 1,800 companies trading at a value of more than £2 trillion. But both moves demonstrate once again the extraordinary discount that UK shares are trading at relative to their peers in the Us and across Europe.
It is a phenomenon that top economist simon French at Panmure Gordon has been highlighting for the last seven years.
Back in 2016 it was possible to blame the dislocation on the political instability triggered by Brexit. that’s no longer an excuse.
NOR is the slow recovery from Covid, since the economy has now more or less caught up with pre-pandemic levels. French has looked at all possible comparisons – valuations based on all indicators such as differences in sectors or price earnings – and still comes up with a discount for the UK markets of 19pc to the rest of the world. What’s worse, the discount has been self-reinforcing as liquidity has fallen while attempts at stimulating the capital markets have failed. in the meantime, canny American and overseas investors will keep on hunting for hidden treasures among UK’s smaller companies from right under the noses of domestic investors. What a shame. it is time for the London exchange – and the authorities – to concentrate on finding the right trigger to close this ludicrous discount.
Cash on the rise
THE use of cash has grown for the first time in a decade, according to a survey from the British retail Consortium, rising to 19pc of all transactions in 2022. this was up from 15pc in 2021. this reflects two trends: a return to cash after the rise in contactless card payments during the pandemic, but also the fact that more consumers are using the hard stuff to help budget.
Overall, though, the use of cards is still dominant and comes at a significant cost to merchants. retailers spent £1.26bn on card processing fees in 2022.
Which is why the BRC calls on the Payment systems regulator to increase competition and for the treasury to review fees.
Even so, it is a positive sign that cash is on the rise just as governments step up the pressure for us all to go contactless.
Being able to store cash under the mattress is an essential freedom in any democracy worth its name.