Despite Deliveroo’s disastrous debut, evidence suggests IPOs remain a hot trade.
The Deliveroo (LSE:ROO) “fiasco” may have tarnished the London market's reputation, but beyond the negative headlines the City is enjoying the best period for IPOs in a decade.
A research note from Liberum today points to the performance of newly listed companies —Deliveroo aside — being much better than the wider FTSE All-Share over the same time frame, driven by successes such as Auction Technology Group (LSE:ATG) and Dr Martens (LSE:DOCS).
It highlights a post-Brexit explosion in IPO activity, with the £5.9 billion raised by companies in the year-to-date the highest quarterly run-rate since Q2 in 2011. The past few months have also been the busiest for IPOs since 2010.
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Cybersecurity company Darktrace looks set to be the next heavyweight stock to join the list in the coming weeks, but with Deliveroo shares sliding 30% on the first day of conditional dealings the enthusiasm for more founder-led tech IPOs may have cooled.
Cazoo, the online car retailer, has already opted for New York over London after founder Alex Chesterman reversed the business into a cash shell.
The Deliveroo IPO has been marred by criticism of the company’s treatment of delivery riders and by the reluctance of many top fund managers to back the offer, particularly with founder and chief executive Will Shu still having control over 50% of shareholder voting rights.
The company also remains loss-making despite the pandemic providing the biggest tailwind the company could ever hope for. Having opened at 390p last week, the shares appear to have found their level at 285p after a steady couple of sessions in recent days.
Analysts at Berenberg today highlighted the cautious mood in the City by giving the food delivery app a price target of 310p and ‘hold’ recommendation.
In its note headed “Don't let the Deliveroo IPO distract you”, Liberum said that the average performance of new issues since the debut of Hut Group owner THG (LSE:THG) in September had been 17% higher.
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The best newcomer was payments and messaging services business Fonix Mobile (LSE:FNX) after almost doubling in value, while other successful smaller flotations have included consumer products business Supreme and investment company Kistos (LSE:KIST).
Among the larger debutant stocks, online auction business Auction Technology Group has risen by 37%, greetings card firm Moonpig (LSE:MOON) by 21% and bootmaker Dr Martens by 22.5%. Consumer reviews business Trustpilot (LSE:TRST) is flat after its IPO on 23 March, while workforce management company ActiveOps has risen 13% in the week since its debut.
Liberum said: “Despite the failure of the Deliveroo IPO, the performance of IPOs in 2020 and 2021 has been much better than the performance of the FTSE All-Share on a comparable timeframe.
“A lot of the outperformance is driven by very small IPOs but even if we restrict our sample to IPOs with an offer size above £100 million, we observe a significant outperformance of newly listed companies in every month except March.”
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