-
We are publishing the second edition of the ‘Peel Hunt IPO Speedometer’, which, based on a proprietary model with over 30 qualitative and quantitative inputs, gives a numerical score (0-60mph) for the health of the UK IPO market.
-
This month, the speedometer has accelerated to 27mph, up from 24mph in April. The speedometer remains in second gear, classifying the UK IPO market as “selectively open”, but is close to being more widely open.
-
The key drivers of the model this month were: the resumption of UK IPO activity, a continued European IPO recovery, significant broader UK ECM volumes, a disappointing spike in UK equity outflows, strong performance of UK equity markets, positive relative UK macro, and a ramp up in UK public M&A activity.
What has so far been a European-led IPO recovery has started to spread to the UK. Although the number of announced or priced UK IPOs remains small, it is positive to see the activity levels gradually increasing. Broader market indicators continue to improve and the market remains open for select issuers. We expect there to be an increasing number of UK IPOs by 2H24 and have further confidence on a broader re-opening in 1H25.
UK IPO activity has resumed. In recent weeks we have seen the intention to float announcements for both Raspberry Pi and AOTI (Peel Hunt Global Co-ordinator on both). This follows what has so far principally been a European-led recovery of the IPO market. Although these deals both have a number of specific factors to them, it is positive for the market overall to see the number of UK IPO datapoints start to increase. How they price and trade will be important for the broader market.
Broader market indicators support a continued IPO recovery. There are many indicators that feed into the overall health of the IPO market, and many of these continue to improve. In addition to increased UK and European IPO activity, we have also seen strong broader UK ECM volumes. UK equity markets have outperformed their global peers recently, helped by a shift in sector leadership and improving relative UK macro. UK public M&A activity is also increasing, highlighting the value in the market and also providing UK funds with more firepower despite outflows. This supports our IPO speedometer accelerating to 27mph this month.
Outlook for UK IPOs continues to improve. Although the UK IPO market is not currently open for everyone, we expect that to broaden next year. Issuers are recognising this and we are seeing an uptick in companies that are starting early preparation for potential listings in 2025. We also expect continued selective UK IPO issuance for the remainder of 2024.
Key drivers of the model this month
Resumption of UK IPO activity
Following a European-led IPO recovery in 1Q, 2Q has seen the resumption of UK IPO activity with the launches of Raspberry Pi and AOTI (Peel Hunt Global Co-ordinator on both). While both of these deals have a number of quite specific factors (e.g. attractive or niche thematics, cornerstone orders from current holders in the case of Raspberry Pi), it is positive for the broader market to see companies pursuing UK listings. Additionally, Special Opportunities REIT, the real estate investment trust, published its prospectus for a potential £500m UK IPO. How they price and trade (expected this week for Raspberry Pi) will be an important indicator for the market.
We have seen positive engagement from investors, particularly UK long only investors, with significant pre-marketing and PDIE (analyst education) schedules. Despite ongoing outflows and clear volume of opportunities in the market generally, UK long only investors are prepared to put money to work in attractive new opportunities, but they need to be compelling.
European IPO recovery continues, with mixed outcomes
As mentioned in our previous report, whilst the European IPO market has many differences to the UK (e.g. domestic investor bases, differing pipelines), we do expect activity to be a lead indicator for the UK IPO market.
Since the last report, we have seen a continuation of the previous themes, with much of the issuance focused on larger, high-quality assets, and assets that have been in the pipeline for some time with significant investor pre-marketing giving them a good platform to launch. It was positive to see the pipeline diversify somewhat, with more mid cap companies come to market. However, there were again mixed outcomes, showing that the market is not open for all issuers. Luz Saúde (healthcare provider) pulled its IPO on the Euronext Lisbon in the pre-deal investor education phase, citing a valuation mismatch with investors. Jordanes (Scandinavian food and dining brands) also pulled its c.$140m IPO in Norway following an oversubscribed message, pointing to challenging market conditions. It was positive to see the majority of deals price and trade well, however. Following a number of large flagship IPOs in Europe YTD (e.g. CVC, Galderma, Puig), the upcoming pipeline is expected to have a more mid-cap feel to it and therefore be a better gauge for the broader IPO market.
One theme we are starting to see more of is the use of cornerstone investors to anchor and de-risk offerings. Exosens, the French sensor technology company, priced its IPO last week and had a number of cornerstones. They included Bpifrance, the French state investment bank, that had a cornerstone order for 4.5% of the company, and CDC Tech Premium, part of the Caisse des Dépôts group (French state-owned bank), which placed a cornerstone order of €30m. CDC Tech Premium is designed to support the IPOs of European technology firms and these orders highlight the support that certain European governments are putting behind IPOs and growth companies.
|
Figure 1: European IPOs since March over £100m |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Source: Dealogic, 05 June 2024 |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Significant broader UK ECM volumes
Whilst the UK IPO market has been quiet compared to Europe so far this year, we continue to see significant broader UK ECM volumes. UK ECM volumes (ex-IPOs) have been $13.0bn YTD, +13% on the comparative period last year and significantly ahead of other European exchanges (see Figure 3 below). This should give comfort to issuers who question the depth of the UK market and its ability to absorb large deals.
A lot of UK ECM volumes YTD have been focused on a relatively small number of jumbo transactions, particularly secondary selldowns (e.g. LSE, Haleon). However, we are starting to see a broadening of activity to more FTSE 250 names, with a number of selldowns witnessed over the past two months. Peel Hunt acted as Sole Global Co-ordinator on two of those (a £68m selldown in TI Fluid Systems# by Bain and £45m selldown in Mitie by Alchemy). This again has shown the willingness of the domestic UK long only investor community to support deals where they have conviction. That said, there is not necessarily support from all shareholders, and it remains important to identify non-shareholder pockets
of demand to price many deals successfully. The majority of these mid-cap
UK deals have priced and traded well in the aftermarket, which has been positive for sentiment.
Overall, deals have been working well and investors making money, which should breed confidence for future IPO participation.
|
Figure 2: UK ECM deals in April and May 2024 with deal value over £25m |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Source: Dealogic, 05 June 2024 |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Figure 3: Sales of new and existing shares ex-IPOs 2024 YTD
Source: Dealogic, 28 May 2024. Only deals with deal value > $5m included.
Continued strained UK equity outflow picture
Despite the more positive market picture, we continue to see outflows from UK equity funds, with a £1.1bn outflow in May, the worst since June 2022 and the second-worst month on record (source: Calastone). £792m of those outflows were from actively managed UK funds. This means we have seen 36 months of consecutive UK outflows, totalling £22.4bn. Whilst global equity inflows continued, the pace slowed significantly in May.
Figure 4: UK equity fund flows
Source: Calestone
Strong relative performance of UK equity markets and positive equity performance overall
Following an extended period of underperformance, UK equity markets have outperformed other global benchmarks over recent months. Over the past two months, the FTSE 100 is +2.9% and the FTSE 250 is +2.8%, which compares to the S&P 500 -0.8% and Stoxx 600 -0.4%. On a dollarized basis,
the outperformance is even more pronounced. This has been driven by a number of factors:
- Outperformance of cyclical sectors (e.g. banks, mining, energy), which have a higher weighting in London, helped by positive economic data.
- Positive relative UK macro compared with other regions and divergence of potential central bank action as a result (more detail below).
- Acceleration in M&A activity, which has driven share prices up in many cases (e.g. Anglo American / BHP, Darktrace / Thoma Bravo, Hargreaves Lansdown / consortium).
- A step-up in share buyback activity, led by the banks and resources sectors.
Figure 5: Index performance over the last two months
Source: Refinitiv Workspace, 31 May 2024
Positive relative UK macro data
UK macro data has continued to trend in a positive direction. Data from the Office for National Statistics has shown that UK inflation fell to its lowest level in nearly three years in April, to 2.3%. This was down considerably from 3.2% in the 12 months to March. Although this was above City expectations (2.1%), it showed the continued positive downwards progression. The IMF also upgraded its growth forecast marginally from 0.5% to 0.7% and predicted growth of
1.5% in 2025.
This compares with macro data in the US, which has been less favourable, particularly inflation. The consumer price index (CPI) rose at an annual pace of 3.4% in April, barely down from 3.5% in March. As a result, we have started to see a divergence in expectations around US and UK/Euro central bank policy, with many market participants now expecting central bank cuts in the UK ahead of the US, noting the ECB has just announced a rate cut.
Commentary on other inputs this month
- Frequency of M&A deals announced – we continue to see a heightened level of take private activity, with a number of potential deals announced in recent months, as highlighted above. This has the impact of highlighting subdued valuations and providing funds with a cash injection where cash deals go through.
- Engagement from investors in pilot fishing and pre-IPO meetings – we are seeing positive engagement from UK long only funds in particular on pre-IPO meeting processes. Where there are compelling opportunities, investors are putting their hands up to participate, including
interest to cornerstone. - Politics and general election – greater perceived clarity on election outcome in UK compared with other countries, particularly the US. Although early in the election process, greater relative stability predicted in UK also.
- Improving earnings trend – May saw the first meaningful trend to upgrades since August 2023 for UK listed companies under Peel Hunt coverage.
Figure 6: Balance of upgrades vs downgrades per month
Source: Company accounts, Peel Hunt estimates
Potential UK IPOs
The following companies are rumoured in the press to be considering a UK IPO over the short-to-medium term (with many considering other exchanges too).
|
Company |
Source |
|
Applied Nutrition |
Sky News |
|
Boots |
|
|
Canopius |
|
|
Ebury |
Bloomberg |
|
FNZ |
|
|
Internet Mobile Communications |
The Times |
|
Klarna |
|
|
Metlen |
|
|
OakNorth |
|
|
Shein |
|
|
Starling Bank |
|
|
Thought Machine |
|
|
Unilever Ice Cream |
|
|
Waterstones |
|
|
Zilch |
|
|
Zopa |
Background to the PH IPO Speedometer
The IPO Speedometer is a tool for potential issuers, shareholders and investors to accurately assess the current health and outlook of the UK IPO market. Based on a proprietary model with over 30 qualitative and quantitative inputs, it gives a numerical score (0-60mph) for the health of the UK IPO market. It is published on a bi-monthly basis.
PH IPO Speedometer scale
|
Speed |
IPO market status |
IPO market characteristics |
|
0-10mph |
Closed: “First Gear” |
Market not open for IPOs, including Tier 1 assets |
|
10-30mph |
Selectively Open: “Second Gear” |
Market open and receptive to deals, however investors remain circumspect and selective Some combination of the following required: Tier 1 assets, attractive pricing/IPO discount, sensible sizing, significantly de-risked/cornerstones |
|
30-40mph |
Open: “Third Gear” |
Regular flow of IPOs across sectors IPO discount still typically required |
|
40-50mph |
Strong: “Fourth Gear” |
Broader investor appetite and participation Increasing deal sizes and further ability to do larger secondary offerings |
|
50-60mph |
Hot: “Fifth gear” |
IPO market open for a wide range of companies Relatively low IPO discount and opportunity to do large deal sizes |
Methodology and inputs for the PH IPO Speedometer
In order to calculate the speed of the Peel Hunt IPO Speedometer in any month, we assess datapoints across eight main buckets, giving each bucket an overall score. These buckets are then split into primary and secondary drivers of the UK IPO market and a weighting (depending on their importance) is assigned to each overall score. This then provides us with the output in the 0-60mph range. The eight main buckets and their inputs include the following:
1. Equity fund flows (primary driver)
2. Volume and performance of IPO/ECM activity (primary driver)
3. General investor sentiment (primary driver)
4. LO investor engagement (primary driver)
5. Market stakeholder objectives/expectations
6. Equity market performance
7. Macro backdrop
8. Broader trading activity/market liquidity
