16th June 2014
As expectations build ahead of TSB hitting the stock exchange later this month analysts are warning investors that initial public offerings (IPOs) should not be seen as a one way bet.
Research from wealth manager Brewin Dolphin shows that, of the six companies that debuted on the UK stockmarket in the past twelve months, four are currently trading below their flotation price and just two have left investors sitting on significant gains.
Stephen Ford, head of investment management at the firm said: “The hype surrounding the Royal Mail float may encourage people to think that buying shares when a company floats is a sure-fire way to make money.
“Our experience, along with our research, shows that people need to be far more careful than this.”
With Royal Mail shares up by some 50% since October last year, many retail investors may well feel that they missed out on a tidy profit as individual allocations were limited.
However, as Ford points out, investors in Saga, Pets at Home and Infinis Energy are all nursing losses with stock in the latter down almost 20% from its flotation price. Merlin Entertainments, owner of Madame Tussauds, has seen its shares rise 18% since its debut in November last year but Ford warned that this was the exception rather than the rule.
“Investors should be careful not to get their fingers burnt,” he said. “Be aware that companies always float for a reason. One reason could be to maximise profit for the company’s current owners and as with any share investment, you should consider how well your own interests will be served by the purchase.”
Last week Lloyds Banking Group confirmed that in the upcoming TSB IPO shares will be sold at a price range between 220p and 290p. Lloyds, which was bailed out by UK taxpayers in 2008, as part of its obligations to the European Commission is floating 25% of TSB, with retail investors being offered one free share for every 20 they snap up, up to a maximum value of £2,000 but they cannot sell the stock for at least a year. The reminder of TSB must be offloaded by the end of 2015.
At the mid-point of the pricing range, TSB would be worth almost £1.3bn – less than its £1.6bn book value – when it joins the London stock market. The final pricing of the stock is due to be confirmed around 24 June, with conditional dealings starting on the same day.
Performance of recent UK IPOs with retail allocation
|Announced Date||Issuer Name||Offer Size (M)||Offer Price||Last Close||% change since IPO*|
|11/04/2013||Infinis Energy Plc||237.906||260||208.5||-19.81|
|10/21/2013||Merlin Entertainments PLC||1052.67||315||372.6||18.29|
|02/19/2014||Pets at Home Group Plc||490||245||216||-11.84|
|09/24/2013||Riverstone Energy Ltd||760.352||1000||890.5||-10.95|
|07/10/2013||Royal Mail PLC||1980||330||501||51.82|
|05/27/2014||TSB Banking Group PLC||362.5||tbc|
*% correct on 11.6.14