Do not write off London’s IPO market as a lost cause
It was the year that London’s equity markets got what they wanted. Large tech listings from founder-led businesses in growth sectors. It was just a pity that two of them were Alphawave IP and Deliveroo.
The terrible trading of two of London’s largest listings taints perceptions of the market’s prospects. It would be easy to conclude that in their desperation to arrest a decade or more of decline, the City has embraced tech groups with bad business models.
It would hardly be the first time. Twenty years or so ago, Baltimore Technologies and Bookham Technology made fleeting appearances in the FTSE 100. They demonstrated the dangers of betting on the cutting edge of nascent tech, and of fund managers investing at the edge of their ability to understand such companies.
But the doom-mongers should not write off the City’s latest crop of tech companies yet.
This was not just the year that brought Deliveroo and Alphawave to the public markets, but also British biotech business Oxford Nanopore, eight-year-old cyber security company Darktrace, and fintech money-mover Wise. Analysis by Simon French of Panmure Gordon shows roughly half of London’s new listings by market capitalisation were in the consumer discretionary or technology sectors.
The problem is not that the UK attracts weak tech companies, but that there are just not enough of them. That becomes painfully clear when there is a problem with one. In that respect, this year’s listings could show a promising shift in the market.
A recent listing review by Lord Jonathan Hill, former EU financial services commissioner, observed that, despite decades of efforts to attract tech listings, the London market’s most significant companies were “either financial or more representatives of the ‘old economy’” than the future.
Quibble that Deliveroo is not a true tech company, if you like, but a consumer app with transport attached: it is hard to brand it an “old economy” company. The same is true of Darktrace, Oxford Nanopore and Wise.
Of course, London’s most significant companies will remain financial or “old economy” companies if the new businesses that come to market cannot prove their mettle.
But Oxford Nanopore and Darktrace have traded about as well as Alphawave and Deliveroo have badly. While Deliveroo’s shares are off roughly 45 per cent since floating and Alphawave’s more like 55 per cent, Darktrace is up about 70 per cent from its IPO price and Oxford Nanopore 60 per cent. That is not even the best performance from a UK tech market debutante. Shares in Auction Technology Group, which provides auction platform technology, have more than doubled. French calculates that a market-weighted investment in all London IPOs this year would have returned roughly twice the FTSE All-Share average.
Overall IPO performance has nonetheless been mixed. Berenberg analysts last week put the average UK IPO return for the year so far at just over six per cent. Dealogic data last month showed half of the world’s companies that raised more than $1bn in their debuts this year were trading below listing price, as investors shifted away from growth stocks such as tech and towards value investments. The second half of the year has been far less kind to newly-listed companies than the first.
There is always the risk that London has arrived not just late to the party, but after it has finished. Some of the companies that have come to market, such as online greetings card retailer Moonpig Group, were propelled by the pandemic. That impetus has receded somewhat. An overhaul to make dual-class share structures more mainstream — and so convince founders to take their companies public without ceding control — came into force only this month, as tech companies turned less fashionable. A single Spac has launched since the Financial Conduct Authority changed its rules to become more accommodating to blank-cheque companies.
The jury is out on which of London’s new tech listings are attractive prospects. But the poor performance of a few should not detract from the fact London has made progress. As more come to market, the trading troubles of the likes of Alphawave and Deliveroo will become less of a problem.
cat.rutterpooley@ft.com
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