IPO interest holds up despite shaky markets

IPO interest holds up despite shaky markets

Investor interest in initial public offerings has remained intact, despite the markets being forced to contend with uncertainty.

According to analysis from consultancy firm Deloitte, the 11 main market IPOs that have completed over 2016 generated an average return of 11.6 per cent, outperforming the FTSE 350 return of 4.3 per cent over the year.

Listings this year had to contend with market uncertainty over the European Union referendum and US elections, as well as jitters in commodity prices at the start of the year. 

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Chris Nicholls, head of IPO and equity advisory at Deloitte, said tricky market conditions have contributed to a number of stalled listings, adding however: “Those that have gone ahead have typically performed well.”

“From our experience, many investors have remained interested in IPOs where both the equity story and the valuation metrics are sufficiently compelling.” 

A particular challenge for issuers, Mr Nicholls said, is how to respond to volatile stock market conditions and to identify what preparations can be made to shorten lead times for a listing.  

“Companies and shareholders need to be ready to move rapidly when a window appears.”

An investment of £1,000 in each of the 63 IPOs launched since 2014 is now worth £74,017, figures show.

By comparison, a £1,000 investment in the FTSE 350 at each IPO date would have risen to £64,716.

John Hammond, head of equity capital markets at Deloitte, said the IPO pipeline looks strong into the first quarter of next year. 

However, he said one potential “sticking point” is the recent narrowing of equity yield compared to bonds following the US election result, adding: “This may lead to fixed income investments becoming more attractive to investors.”