For some, investing is a source of fascination. Others are motivated by the need to provide for the future, but even they can get caught up in the excitement of a new share issue.
An IPO (initial public offering) or flotation seems to offer the chance of a stake in a success story that’s possibly destined for even greater things.
There are thrills and spills along the way. In 2021 a record 1,095 companies went public worldwide. Bens Creek, a UK company that mines coal for steel making, made its stock market debut at 10p. Its shares now stand at 42p.
Shares in Nightcap, the night club business, also floated at 10p. They have risen to 15.75p.
By contrast, shares in Cellular Goods, the cannabis skincare product company backed by David Beckham (pictured top) have slumped by 78pc since their February 2021 market debut.
And food delivery service Deliveroo (which I hold) has also been a disaster. But at least I was able to apply for shares in that IPO, which is rarely the case for ordinary individuals, who are still often shut out in favour of institutions.
The stockbroker Peel Hunt is now offering a service allowing easier access to IPOs for clients of AJ Bell, Hargreaves Lansdown and Interactive Investor. It says that private investors were able to take part in just 21 of the 182 flotations in the UK since October 2020.
It may be true, as Warren Buffett preaches, that ‘an IPO involves an informed seller thinking it’s a pretty good time to sell,’ but we should still be permitted to make an assessment of a company’s prospects. Those who invested in the IPO of the online retail player The Hut Group (THG) in September 2020 will be dismayed by its subsequent descent from 500p to 83p. But they were not denied the opportunity to participate.
As Richard Wilson, chief executive of Interactive Investor, argues, the strategy of exclusion will not build a ‘nation of investors’.
Wilson wants the Treasury to introduce ‘prescriptive rules, enshrined in legislation’ to end the marginalisation.
He says: ‘IPOs can be risky, and the research is mixed – but it does suggest that the best time to be involved in a typical one tends to be before it begins trading on the stock market.’
Oxford Nanopore, the gene sequencing company, highlights this. Its shares, offered to institutions only in September 2021 at 425p, bounced by 28 per cent at the start of trading. The sense of injustice over this and other examples of exclusion has not gone away, although economic gloom means there has been a dearth of IPOs in London this year.
Gymshark, the athleisure company and Burger King’s UK arm were among those poised to list.
The cost of living squeeze has been a reason to delay for companies that depend on free-spending consumers.
Another factor is the dire performance of Spacs (special purpose acquisition companies), the shells used by some businesses to go public on Wall Street.
The CNBC SPAC Post Deal Index made up of these erstwhile stars has dropped by close to 50 per cent this year. It is said that companies and their advisers may be waiting to see the reception accorded to Haleon this month.
This £50billion company, whose brands include Panadol and Sensodyne, is being spun off by GlaxoSmithKline. Existing investors will receive one GSK share and one new Haleon share.
If the Haleon shares surge, this could be a sign that the markets’ mood is more sanguine.
During this hiatus, you may be pondering the purchase of shares in some of the businesses that floated in 2021 at possibly inflated prices. But some fund managers are yet to be persuaded that bargains are appearing.
Alexandra Jackson of the Rathbone UK Opportunities fund has been looking at Oxford Nanopore, whose shares have suffered a reverse, tumbling to 304p: ‘But we are not buying for the moment if only because there could be another stock market decline.’
Should the Treasury ensure that you get the chance to apply, when IPOs resume, do bear in mind the Buffett dictum.
David Coombs of Rathbones comments: ‘Remember that private equity owners may have laden up a business with debt, or that the founders may be ready to quit. Don’t be too comfortable just because the company is a household name – Aston Martin shares have halved since its IPO.’
Although private investors may be treated as second class citizens in most IPOs, one industry does welcome your cash.
Healthcare, property and renewable energy infrastructure investment trusts have raised about £4billion this year in share placings.
Through this route, I have put money into trusts like Gore Street Energy Storage using Primary Bid, the app that helps ordinary people invest in IPOs and placings. But this democratisation has a great deal further to go.
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.