London Stock Exchange braced for potential fresh wave of IPOs

The Hut Group made the biggest debut on the LSE in seven years in September with a £1.9bn float

A Deliveroo rider cycles through central London. There has been speculation the British fast-food delivery company would list on the London Stock Exchange this year. Getty Images

Gold miner Yamana Gold returned to the London Stock Exchange on Tuesday, one of the latest listings to hit the bourse in recent weeks as activity ramps up after a sluggish start to the year amid the Covid-19 pandemic.

The Toronto precious metals company, which produced more than 1 million gold equivalent ounces in 2019, was previously listed on the LSE from 2003 to 2013 and is also listed on the Toronto Securities Exchange and the New York Stock Exchange.

“The listing will provide us with a greater platform from which to access a larger pool of investors to increase Yamana’s global profile,” Peter Marrone, chairman and founder of Yamana Gold, said in a statement on Tuesday.

While not an initial public offering (IPO), where companies offer their shares to the public for the first time, Yamana Gold’s return to the bourse comes at a time when London’s sluggish IPO market is starting to show life after being halted by the coronavirus pandemic. More than 100 IPOs worldwide were put on hold in the first half of the year, according to FactSet, as the pandemic caused extreme market volatility and made deals hard to price.

In the UK, only nine companies had gone public on the LSE by September 18, but speculation of more activity to come has analysts talking of “a tentative return to some form of life in the IPO space”.

"It has been a generally poor year in terms of new IPOs in the UK, with the pandemic firmly closing the lid on those companies which may have been considering a market listing deciding against launching at a time when existence rather than growth was a major aim for many corporates," Richard Hunter, head of markets at interactive investor, told The National.

“Indeed, the FTSE100 index itself, also home to mature and cyclical businesses which have struggled during the pandemic, currently stands down by 21 per cent in 2020, with immediate prospects indistinct. There seems to be general agreement that the UK’s premier index is currently undervalued, but this has not proved enough to tempt international institutional buyers back into this market.”

London’s IPO market appeared to hot up at the start of last month when David Beckham-backed Guild Esports unveiled plans to list the stock market. The UK company completed its flotation on the LSE on October 5 with a market capitalisation of £41.2 million ($53.74m), after the organisation managed to raise £20 tomwards the end of September.

The flotation came after British e-commerce firm The Hut Group made the biggest debut on the LSE in seven years with a £1.9 billion ($2.47bn) float on September 14, raising hopes that pandemic-proof companies could pave the way for a comeback.

The company, which helps sell retail brands, including Lookfantastic and skincare group Espa, sold 376 million shares at £5 each to raise £1.88bn with its shares jumping as much as 30 per cent during its first day of trading.

“The success of The Hut Group listing ­- which seems likely to be the UK highlight this year - was symptomatic of the appetite for all things tech, given the dearth of such tech opportunities in the UK when compared to the US in particular,” said Mr Hunter.

Despite a strong domestic start-up scene, the London market has struggled to attract technology businesses in recent years with many UK start-ups preferring the US’s Nasdaq or NYSE, where investors are believed to have a better understanding of tech investments.

US exchanges saw 236 IPOs by September 20 this year and 229 the previous year, with many of those tech-related.

The UK’s IPO scene was already struggling, however, suffering a 60 per cent drop in the number of companies choosing to list on its stock exchange in 2019, compared to 2018.

Just 36 companies listed on the LSE last year, the lowest number since the financial crisis of 2008-09 with analysts attributing the slowdown to the US-China trade war and uncertainty around Brexit as a challenge for companies with headquarters in the European Union.

"A hard Brexit could deter IPOs in London, but it is impossible to say how badly at this stage," Fawad Razaqzada, market analyst at ThinkMarkets, told The National. "I guess there will be a number of CEOs looking to list their companies, and are just waiting on the sidelines to see how a post-Brexit Britain would look like before deciding to list in London. If a good deal is secured, it is likely they will be more willing to consider going public since the economic outlook should be relatively better than under a no-deal scenario."

While there is speculation of more IPOs to come this year, Mr Hunter said many “may have been shelved for the time being, given the difficult economic backdrop in the UK and the likelihood of some difficult months to come".

“As such, the likes of Jaguar Land Rover, BrewDog and McLaren Group may decide that market conditions are not yet sufficiently favourable.”

Speculation that UK food-delivery start-up Deliveroo has begun preliminary talks to explore an IPO has also ramped up in recent weeks, though Mr Hunter said this “seems unlikely to happen before next year”.

“There may have been a tentative return to some form of life in the IPO space, but on the whole caution remains the watchword," he added.