17 June 2014
Buying into the excitement over companies’ Initial Public Offerings may not be a golden ticket, warns wealth manager Brewin Dolphin.
Research from the group shows that, of the seven companies that debuted on the UK stock market in the last twelve months, four are currently trading below their flotation price and only two have left investors sitting on significant gains.
“The hype surrounding the Royal Mail float may encourage people to think that buying shares when a company floats is a surefire way to make money,” warned Stephen Ford, Head of Investment Management at Brewin Dolphin. “Our experience along with our research show that people need to be far more careful than this.”
Royal Mail shares, which floated at 330 pence per share, have given their investors a gain of over 50 per cent since July last year, prompting many retail investors to feel that they missed out on profit as individual allocations were limited.
However, investors in Saga, Pets at Home and Infinis Energy are all nursing losses. Infinis shares were down almost 20pc from their flotation price at the time of writing.
Merlin Entertainments, owner of Madame Tussauds, has seen its shares rise 18pc since its debut in November last year, but Mr Ford warned that this was the exception rather than the rule.
“Investors should be careful not to get their fingers burnt,” he said. “Be aware that companies always float for a reason. One reason could be to maximise profit for the company’s current owners and as with any share investment, you should consider how well your own interests will be served by the purchase.”
ENDS
Performance of recent UK IPOs with retail allocation
| Announced Date | Issuer Name | Offer Size (M) | Offer Price | Last Close | % change since IPO* |
|---|---|---|---|---|---|
| 11/04/2013 | Infinis Energy Plc | 237.906 | 260 | 208.5 | -19.81 |
| 10/21/2013 | Merlin Entertainments PLC | 1052.67 | 315 | 372.6 | 18.29 |
| 02/19/2014 | Pets at Home Group Plc | 490 | 245 | 216 | -11.84 |
| 09/24/2013 | Riverstone Energy Ltd | 760.352 | 1000 | 890.5 | -10.95 |
| 07/10/2013 | Royal Mail PLC | 1980 | 330 | 501 | 51.82 |
| 04/30/2014 | Saga Ltd | 550 | 185 | 179.25 | -3.11 |
| 05/27/2014 | TSB Banking Group PLC | 362.5 | tbc |
*% correct on 11.6.14
Performance of UK IPOs with retail allocation over past five years (above, below or in line with floatation price)
| Up | % of total | Down | % of total | In-line | % of total | Total | |
|---|---|---|---|---|---|---|---|
| To Date | 17 | 44.7 | 18 | 47.4 | 3 | 7.9 | 38 |
| First Day | 25 | 65.8 | 10 | 26.3 | 3 | 7.9 | 38 |
| First Week | 26 | 68.4 | 9 | 23.7 | 3 | 7.9 | 38 |
| First Month | 24 | 63.2 | 10 | 26.3 | 4 | 10.5 | 38 |
| First Year | 15 | 39.5 | 15 | 39.5 | 8 | 21.1 | 38 |
Performance of all UK IPOs over past five years (above, below or in line with floatation price)
| Up | % of total | Down | % of total | In-line | % of total | Total | |
|---|---|---|---|---|---|---|---|
| To Date | 107 | 42.0 | 97 | 38.0 | 51 | 20.0 | 255 |
| First Day | 169 | 65.8 | 39 | 15.2 | 49 | 19.1 | 257 |
| First Week | 153 | 59.5 | 48 | 18.7 | 56 | 21.8 | 257 |
| First Month | 136 | 61.8 | 59 | 26.8 | 25 | 11.4 | 220 |
| First Year | 72 | 50.0 | 61 | 42.4 | 11 | 7.6 | 144 |
The value of investments can fall and you may get back less than you invested.
No investment is suitable in all cases and if you have any doubts as to an investment’s suitability then you should contact us.
Past performance is not a guide to future performance.
The opinions expressed in this article are not necessarily the views held throughout Brewin Dolphin Ltd. No Director, representative or employee of Brewin Dolphin Ltd accepts liability for any direct or consequential loss arising from the use of this document or its contents.
For further information please contact the Brewin Dolphin Press Office on 020 3201 3026#