When stock markets are falling I can quite understand that privately-owned companies and their advisers are nervous about launching an IPO. I do not understand why getting shares away in a buoyant market is so difficult. The implication is that either there is something wrong with the company or the proposed flotation price is simply unrealistic.
Yet complaints about the state of the market have resurfaced of late on the London Stock Exchange despite the surge in share prices since the initial drop following the Brexit vote.
Waste management group Biffa (BIFF) went ahead with its IPO this week but at 180p a share, well below its 220p-270p target range. Biffa announced plans to float a month ago when the FTSE 100 was around 6,800 points. By close of play last Friday, just before Biffa went ahead, the index was at 7,000. The FTSE 250 was just under 18,000 points, about the same as a month earlier.
Biffa did at least make it to market, although it needed its three private equity owners, who were looking for an exit from their investments, to buy extra shares to fill a hole. Fitness chain Pure Gym, vehicle parts manufacturer TI Fluid Systems and doughnut maker Krispy Kreme UK gave up on the idea. Software services company Misys is, like Biffa, a better know name but, also like Biffa, it has been forced to slash the amount it hopes to raise.
So what exactly is supposed to have gone wrong with the market? It has admittedly been turbulent, but no more so than it was earlier in the year, well before the referendum, when 100 point movements in the FTSE 100 were commonplace.
I have not bought shares in a flotation since British Gas – now Centrica (CNA), which was back when we had our first female prime minister. Now I’m beginning to remember why I find them too uncertain.
Some Hints on Chintz
A delegate reader at the London Investor Show, Malcolm Ransome, approached me and asked my opinion on furnishings and clothing group Laura Ashley (ALY), a company I had not looked at for quite some time.
Nothing in what follows can take away from my admiration for the Malaysian interests that rescued Ashley when it was at rock bottom. It is a miracle that the chain has not only survived but has been profitable for several years. However, such admiration comes nowhere near to persuading me to invest.
Although the main shareholder, MUI, has 35% of the shares, other companies where chairman Tan Sri Dr Khoo Kay Peng has an interest take the total to 60%. I do not invest in companies that are majority controlled because often minority shareholders have little say.
I might be persuaded otherwise if the figures were compelling but they are not. The most recent results covered 74 weeks to the end of June. Sales held up well even after allowing for the fact that comparisons were with a 53-week period. Profits, however, were little changed, which was effectively a large fall since they were spread over a longer period.
The dividend was raised from 2p to 2.5p, but that was also effectively a decrease and the dividend has been barely covered for the past five years. The shares were 35p in May last year but have slid to around 20p now, which means the yield is about 10% based on an annual dividend of 2p while eps is in single figures. That reflects the degree of risk.
I have bought stuff from the Bromley store and been happy with it and with the staff there. I wish I could be kinder about the shares. The best I can say is that they are a high-risk investment.
Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice.
