Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
The exciting and sometimes highly profitable world of initial public offerings (IPOs) has blossomed in London this year. A number of themes have evolved over recent months that appear to be informing the decisions of companies to list their shares and investors to buy them.
Technology solutions attract strong support
With large numbers of people still banking the traditional way and many others still unbanked, especially in emerging markets, combining finance with technology (fintech) remains an attractive proposition. Wise – the UK company behind a money transfer app – has already made good progress since its market debut just over a week ago and is now worth around £9.6 billion1.
This week’s IPO by Seraphim Investment Trust – the world’s first listed Space tech fund – raised approximately £180 million and was oversubscribed2. The Trust is hoping to capitalise on the twin themes of a rising demand for space technologies in a world of driverless cars, smart cities and robotics and the rapidly falling costs of building and launching satellites.
Companies that adhere to high environmental, social and governance standards (ESG) are more likely to attract loyal customers and suffer lower reputational and legal risks. Quite rightly, these features are becoming increasingly highly prized by investors. What became apparent during the pandemic was the fact Deliveroo’s ability to make a profit on every order lies in its low cost workforce, not its app, and investors voted with their feet.
London is emerging from its Brexit shadow
The reasons for not choosing London as the place to launch an IPO have been diminishing fast since Britain secured a trade deal with the EU. London benefits from a diverse ecosystem of financial expertise and a favourable international time zone. The diverse range of companies that have chosen to list in London this year includes TinyBuild, a video games publisher from the US.
Direct listings are fairer
Bones of contention in the past have sometimes been unreliable methods of determining a company’s valuation prior to its market debut and the unequal treatment of institutional and retail investors. The flotation of Wise last week – the first ever direct listing of a tech company in London – achieved a valuation for the company during a three-hour opening auction. Retail and institutional investors bought shares at the same time and in the same way.
Consumption trends are creating new opportunities
Pent-up demand owing to the pandemic and changing consumer habits suggest there will be more opportunities for companies to develop their traditional and online retail models. Dr Martens and the online furniture retailer Made.com went to market in June. The cosmetics and skincare firm Revolution Beauty is set to join them next week on AIM.
IPOs no guarantee of sky-high returns
Deliveroo – still trading below its April offer price – is not the first big IPO to have disappointed investors expecting to hop aboard a fast-growing company at the ground floor. It won’t be the last, either. One of the challenges facing IPO investors is the lack of information about how public markets might have valued companies in the past. Before investing in an IPO it’s always worth assessing it in relation to the prospects for other stocks you own or may wish to own.
More on investing in shares
1 Bloomberg, 15.07.21
2 London Stock Exchange, 14.07.21
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.
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