Interactive Investor

IPOs dazzle in knockout week

13th May 2016 15:01

Harriet Mann from interactive investor

It's been a good week for companies making their debut on the London Stock Exchange, as hungry investors guaranteed chocolate chain Hotel Chocolat and renewable energy group Green & Smart had a dazzling start to life as a public company.

Thrashing the market, theirs was a tough act to follow, but Friday's IPO - used car retailer Motorpoint - is still up 8% on its debut as more established names struggle.

Hotel Chocolat now changes hands for 40% more than its IPO price and Green & Smart is over a fifth higher. Clearly impressed, asset manager Old Mututal and investor Hargreave Hale have since bought big stakes in Hotel Chocolat, now holding 7.9% and 5.3% respectively.

The auto industry has a tough audience at the moment. After a great run, weaker global economic data threatens UK growth, and uncertainty around the upcoming EU referendum is weighing on share prices. If the UK votes to 'leave' the union next month, sterling could crash and makes things difficult.

Motorpoint priced its float at 200p per share - representing half of its issued share capital and valuing the business at £200 million. They peaked at 216p Friday.

Co-founder David Shelton will be rubbing his hands with glee: he and other members of management have just pocketed £100 million from the sale. Shelton still has a sizeable 22.9% stake in the business through his company Shoby Investments. His 22.9 million shares are currently worth around £49 million.

Generating £729 million revenue last year, up by half in three years, the group sells "nearly-new" vehicles from 10 sites across the UK - half of which opened in the last four years. Its acquisition of a car supermarket site and business near Birmingham should go through by the end of next month.

In addition to its supermarket sites, Motorpoint generates around 30% of retail sales online and via call centres. Its Auction4Cars.com website also offers businesses a platform to exchange older vehicles and it’s got a growing aftersales business, crucial in this industry.

Pre-tax profit more than doubled in 2014-2016 from £7.7 million to £16.9 million. With a return on capital employed averaging over 100% a year for the last three, the group's efficiency is also evident in its quick inventory cash turn of over 10.2 times.

That means "in the absence of unforeseen circumstances" Motorpoint will announce an interim dividend with its half-year results for the financial year ending 31 March 2017, expected by 30 November.

"As the largest independent vehicle retailer in the UK, with a differentiated, multichannel, disruptive business model and a compelling customer proposition built around choice, value and service, we believe that this listing on the LSE will provide the catalyst to take the company to the next stage of its growth," said chief executive Mark Carpenter.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.