Equities  

IPOs and investor confidence

It is an oddity that one company can ‘go public’ while another is ‘privatised’, but they both end up listed on the London Stock Exchange for everyone to purchase. However, the British are well versed in coping with linguistic shenanigans; everyone is well aware that a public schoolboy is unlikely to have had a free education.

The past nine months have given investors plenty of opportunity to become re-acquainted with the vocabulary of stock market flotation, following the long lull since the 2008 crisis. In the first six months of this year alone, UK initial public offerings (IPOs) raised £1.8bn, compared with £1.1bn for the whole of 2012. Having already eclipsed last year, the momentum shows no signs of slowing.

The second half of 2013 looks even better than the first. Foxtons, the London estate agent, raised £390m on its debut (it went public) and the long-awaited Royal Mail sale (privatisation) is now almost certain. Speculation is rife about other possible launches, with Miller Group, the UK’s largest private housebuilder, and Zoopla, the property search website, making louder and louder noises (about going public).

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Additionally, despite blanket media coverage in the slow summer period, the UK government managed to offload £3.2bn Lloyds Banking Group shares without a whisper of trouble (re-privatisation). Just for the purposes of confusing the situation further, over in Canada you will soon be unable to purchase shares in Blackberry...as it is being taken private. All clear?

Once we’ve negotiated our way through the language issues, the trend is clear to see – company and investor appetites are aligning.

Companies are predicting future growth in their markets (in the UK, the property sector in particular), and are trying to prepare for that by investing in the equipment needed to meet future demand. For the first time in a while, funding is easier and cheaper to raise in the equity market than it is in the bond market – and hence issuance has increased.

Investors, for their part, seem to be gaining confidence, not just in companies, but in their own abilities to pick companies. There is a fledgling return to analysis and stock selection that has been absent for some considerable time, a (re)dawning realisation that careful selection can be worth the time. Of course, this is about as far away from news as it gets – Warren Buffet has been practicing this method, with a fair amount of success, for 60 years.

If markets continue to be buoyed by good news and positive expectations, further opportunities will arise to buy into good companies – whether newly public, or long established – at reasonable prices. The return of a stockpicker’s market has been heralded for some time, but so far 2013 has been exactly that.

There is no shortcut to doing the hard work investigating a company and its prospects. Remember, if you have a reason for buying a stock, someone else will have a reason to sell it – make sure your reason is justified!

Ben Kumar is junior research analyst at Seven Investment Management.