When it comes to floating on the stock market, missing the point can be costly
London Briefing: many newly floated companies are trading below their IPO prices
TopShop retail billionaire Philip Green, backer of MySale Group. Photographer: Simon Dawson/Bloomberg
Casualties of the unprecedented rush to float on the London stock market continue to mount, joined this week by the strange case of MySale Group, the fashion clearance website backed by Topshop retail billionaire Sir Philip Green.
Its shares, priced at 226p, crashed by more than a quarter when dealings began on Monday after advisers to the float, the Australian broker Macquarie Capital, mistakenly listed the price in pounds – £2.26p – rather than pence. To a computer, the misplaced decimal point indicated that the shares had plummeted to just 2.26p, triggering a rash of automated selling orders.
There have been more than a few overpriced floats in recent months, but nothing on quite that scale. As the confusion cleared, MySale recovered its early dramatic losses, although the shares remain well below their offer price, hovering around 200p – or £2, as Macquarie might say.
The notoriously volatile Sir Philip, whose wife Tina owns a 21 per cent stake in the company, appeared to take the fiasco in his stride. “These things happen,” he said.
But Macquarie might be well advised to move a decimal point or two itself when it presents its fees.
MySale joins a growing number of newly floated companies trading below their offer prices, often after having already reduced their price ranges prior to listing.
The market is particularly suspicious of private equity investors offloading companies. Several of the more disappointing floats have been private equity owned – pet accessories retailer Pets at Home, over-50s lifestyle group Saga and greetings card chain Card Factory.
There have been other casualties of a market that is increasingly suffering from flotation fatigue. Lloyds Banking Group is being forced to price its imminent sale of TSB below the book value of the business in an effort to ensure the success of the enforced disposal.
Others have had to abandon their listing plans altogether as investors grow far choosier over what they are willing to buy – and the prices they are prepared to pay. Wizz Air, the Hungarian budget airline, pulled its £160 million (€200 million) float on Monday, citing “market volatility” in the airline sector. Wizz Air was particularly unlucky in its timing, with Lufthansa having unsettled the sector last week with a profit warning.
While investors are undoubtedly becoming more selective, there remains an appetite for initial public offerings and businesses are still lining up to list. The latest is SSP, which yesterday confirmed plans to raise £500 million in a full listing expected to value the travel catering group at about £2 billion.
Although the SSP name is little known, it operates fast-food brands that are familiar to commuters and air travellers, with a 2,000-strong chain of sandwich shops, coffee kiosks, bars, bakeries and restaurants in airports and railway stations around the UK and abroad, including Upper Crust and Caffe Ritazza.
Headquartered in London, it employs 30,000 worldwide and serves on average one million customers a day.
One of Britain’s most respected retailers, Swann joined SSP last year from WH Smith, having spent a decade transforming the high-street retailer from a lossmaking chain that looked destined to suffer the same fate as Woolworths into a highly profitable and tightly run business.
SSP is owned by Scandinavian private equity firm EQT and is already a profitable business. It has just announced a 28 per cent leap in operating profits to just short of £20 million in the six months to March, on sales of £866 million. But it has ambitious expansion plans and investors have high hopes with Swann at the helm.
Although it didn’t do MySale much good, having a respected retailer on board, or at least backing a business, undoubtedly gives a company coming to market the edge over unfamiliar businesses where management is an unknown quantity.
It certainly worked for B&M Bargains, the Liverpool-based discount retailer that successfully floated earlier this month.
B&M is chaired by former Tesco boss Sir Terry Leahy. Its shares rose by 5 per cent on th- eir offer price when conditional dealings began last week, valuing the business at £2.8 billion and making it one of the biggest IPOs so far this year.
As for Swann and SSP, investors are likely to put their mistrust of private equity sellers on hold as they back the return to the market of the woman who transformed WH Smith.
Fiona Walsh is business editor of theguardian.com