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03 Feb 2020
Taking Stock: tumbleweed on Threadneedle Street
BATM Advanced Communications Ltd. (BVC:LON), 19.2 | Computacenter Plc (CCC:LON), 2,497 | CML Microsystems Plc (CML:LON), 355 | Team Internet Group plc (TIG:LON), 139 | FDM Group (Holdings) plc (FDM:LON), 334 | Gamma Communications PLC (GAMA:LON), 1,324 | Gooch & Housego PLC (GHH:LON), 546 | IQE plc (IQE:LON), 28.6 | Kainos Group PLC (KNOS:LON), 909 | Oxford Instruments plc (OXIG:LON), 2,108 | Sage Group plc (SGE:LON), 1,139 | Sophos Group (SOPH:LON), 0 | Spirent Communications plc (SPT:LON), 193 | Telecom Plus PLC (TEP:LON), 1,615 | TPXimpact Holdings PLC (TPX:LON), 33.0 | Cirata Plc (CRTA:LON), 45.7 | XP Power Ltd. (XPP:LON), 1,054
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Taking Stock: tumbleweed on Threadneedle Street
BATM Advanced Communications Ltd. (BVC:LON), 19.2 | Computacenter Plc (CCC:LON), 2,497 | CML Microsystems Plc (CML:LON), 355 | Team Internet Group plc (TIG:LON), 139 | FDM Group (Holdings) plc (FDM:LON), 334 | Gamma Communications PLC (GAMA:LON), 1,324 | Gooch & Housego PLC (GHH:LON), 546 | IQE plc (IQE:LON), 28.6 | Kainos Group PLC (KNOS:LON), 909 | Oxford Instruments plc (OXIG:LON), 2,108 | Sage Group plc (SGE:LON), 1,139 | Sophos Group (SOPH:LON), 0 | Spirent Communications plc (SPT:LON), 193 | Telecom Plus PLC (TEP:LON), 1,615 | TPXimpact Holdings PLC (TPX:LON), 33.0 | Cirata Plc (CRTA:LON), 45.7 | XP Power Ltd. (XPP:LON), 1,054
- Published:
03 Feb 2020 -
Author:
George O'Connor -
Pages:
10
Good morning. With Friday’s (31 January) Brexit, the UK said farewell to the uncertainties that dogged the market in 2019. 2019 was the weakest IPO market in a decade, with the LSE’s 36 listings making it the quietest year since 2009. Now, investors tell us that there is a paucity of new ideas - with take-outs like Sophos and StatPro, there is money to recycle and they are concerned about a declining pool of listed securities. The most important determinant of a successful IPO is finding buyers for new shares, so this is positive news. At the same time, this is a golden age for technology and the entrepreneur and the UK is the best place in the world to set up and build a tech company, in our view. London is the leading city for unicorns, producing 46 unicorns since 1990; Manchester, Oxford, Cambridge, Edinburgh and Bristol have a combined total of 20. However, Capital Markets has a strong competitor – we note that in 2019, venture funding into the UK was £10bn, +40% Y/Y, and it accounted for 33% of all European Tech investment. We believe that the climate for IPOs will improve from here on in as more investors follow Sir Martin Sorrell’s view (btw his S4C (SFOR.LN, Not covered) was a reverse, not an IPO) who opines, "When you have a legacy company, and all the holding companies have legacy bits, that business is more challenged than if you start with a clean sheet of paper. Starting clean enables you to choose where you are going to go and areas of activity, without being a prisoner of history. While legacy businesses have the advantage of people with great talent, contracts and networks, historic structures impose conditions on operations that make it more difficult.” The wake-up call. 2019 was the quietest of IPO years. But we think that the market will start up again in 2020. Now, the onus is on UK Capital Markets to look not only domestically, but also globally, to attract the brightest to the UK. The UK has a superb IPO track record. Looking to the IPOs since 2010, buying all that are still on the market gives a 155% return (priced 3 February 2020, 08:45 GMT). However, there are some points to note. (i) The IPO market is characterised by binary outcomes - this is a stockpicker's paradise. (ii) There is a residual effect of the Neil Woodford fund collapse, meaning that it may be harder (read: more expensive) for smaller/illiquid firms to ‘get away’ and to attract an audience in the aftermarket. (iii) The best performing IPO of the last decade was Blue Prism (PRSM.LN, not covered) – it has recorded a 2,136% return since its March 2016 IPO. (iv) While the era of Global Britain may have dawned, foreign domiciled companies have had the poorest post-listing track records. (v) We are not through the uncertainty as the UK’s final trading relationship with the EU, our biggest trading partner, is not decided and 60% of London firms anticipate a ‘Brexit Brain Drain’, where tech talent leaves the UK post-Brexit.