One in four listed UK small- and mid-cap businesses see no benefit in being publicly quoted, according to research by the Quoted Companies Alliance (QCA).
The QCA Small and Mid Cap Sentiment Index also found that sentiment regarding recruitment and business prospects, as well as the UK’s economic outlook, has not been lower since the throes of the Covid pandemic. Furthermore, over the survey’s 12-year history, companies have never found it harder to raise funds.
For the second time since the index has been published, firms said they were more likely to raise funds over the next year by bank loans than they through being listed.
As such, just over half (53%) of QCA members are calling for ISA reforms in this week’s Autumn Statement, which they argued would have a “notable” impact on their companies’ ability to raise capital. Some two-fifths (38%) meanwhile believe ousting stamp duty from trading in shares outside the FTSE 100 would also be of benefit.
James Ashton, chief executive of the Quoted Companies Alliance, said that while “talking down London’s public markets is no way to plot their revival”, the QCA “simply had to tell it like it is”.
Time to act is now
“These survey findings detail how tough life is for many companies whose shares are publicly traded,” he explained. “They act as a grim reminder that, if London is to remain an international listings venue of scale and repute, the time to act is now.
“The constituents of the FTSE 100 will always be fine, but the ‘long tail’ of companies and their supporters that contribute immeasurably to the City’s broad ecosystem are suffering. A cocktail of structural and cyclical factors is harming confidence and the ability to invest and grow.”
Ashton supported the UK Government’s proposed reforms to public markets, which were published in Lord Hill’s UK Listings Review three years ago, but argued that, with 100 companies removing their London listings in the last year, “more must be done” to improve company prospects both for shareholders and entrepreneurs.
“That means more capital getting to the companies that need it most,” he continued. “Let’s see UK pension funds finally stepping up to channel British assets into British prospects.
“That means more retail involvement in share ownership, which bonds workers with their employers and consumers to their favourite brands. We need ISA reform, but also internet platforms that encourage stewardship and facilitate productive communications between companies and their ultimate owners.”
More enlightened approach
The QCA is also calling for a “more enlightened approach” to governance and assurance, improvements to auditor affordability and availability, and more “fresh thinking” on liquidity.
“It can’t be right that public funds are being shepherded into illiquid, hard-to-value private equity and venture capital-backed assets in pursuit of growth while compliance departments order fund managers to withdraw from small-cap stocks for fear they won’t be able to liquidate their portfolios in a hurry,” Ashton said.
“We hope the Chancellor acts boldly this Wednesday. At the QCA we stand ready to supply insight and guidance distilled from our membership as required.”
Neil Shah, executive director of content and strategy at Edison Group, said the survey findings would be unlikely to come as a surprise to investors, with members of the Capital Markets Industry Taskforce also calling for Chancellor Jeremy Hunt to improve the UK’s global financial competitiveness.
From words to action
“The Edinburgh reforms and the Mansion House speech set out a range of measures to make the UK competitive again,” he commented. “There was disappointment that there were no details on this in the King’s Speech and all eyes are now on the Autumn Statement as we need to see the move from words to action.
“International investors now hold over 50% of the London market. We need to find a means of stimulating domestic demand for our companies. Most UK pension funds and retail investors would have missed that Rolls-Royce and Marks & Spencer have delivered better shareholder returns this year than Apple and Amazon.
Shah added: “One of London’s recurring attractions is the depth of liquidity available. However, if the City is to maintain its status as a major financial hub attracting the best talent, expertise and capital, clear, goal-oriented regulations will need to be introduced to make London markets more attractive for investors.”