The Government sold off 60% of its stake in Royal Mail in October at 330p per share, and have given investors a significant gain (the price hovered around 477p on Friday).
TSB was another to have debuted on the FTSE to much fanfare with an initial valuation of 260p, though trading has been volatile since.
New research from Brewing Dolphin into a total of seven new issues on the UK stock market in the past 12 months suggests they may not all be as great investment opportunities as initially touted.
All hype?
“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,” warns Stephen Ford, Brewin’s head of investment management.
“Our research shows that people need to be far more careful than this,” he continues, adding that investors in other high-profile IPOs, Saga, Pets at Home and Infinis Energy are all nursing losses.
Merlin Entertainments, owner of Madame Tussauds, has seen its shares rise 11pc since its debut in November last year, but Ford warns that this was the exception rather than the rule.
He adds: “Investors should be careful not to get their fingers burnt. Be aware that companies, especially those backed by venture capital, always float for a reason. If that reason is to maximise profit for the company’s current owners you should consider how well your own interests will be served by the purchase.”
While fund managers who took positions in Royal Mail from the start may be feeling pleased with themselves, Andy Thompson, director of operations at the Wealth Management Association, expresses concerns about how the flotation was conducted.
In particular, he says greater emphasis should have been placed on retail investors and increasing retail participation. The value of retail demand was seven times the number of shares available for individuals, and was sufficient to have purchased the entire 60% being sold at 330p per share.
No priority
“The Government needs to remember that wider share ownership not only creates another level of accountability for companies, but importantly can help to build the wealth of thousands of ordinary retail investors up and down the country,” says Thompson.
“Giving priority to institutions or sovereign wealth funds ignores those who have a vital stake in these companies in the first place. Any company coming to market should allow retail access to its share offering and, if not, explain why not. In other words ‘comply or explain’.”
Of course, investors must tread carefully with any IPO situation, though as far as investment trusts are concerned, more choice can only be a good thing.
According the AIC, the investment trust sector has raised £1.9bn from nine IPOs year to date, compared to £1.3bn from eight new issues at the same time last year, while there are another four more in the immediate pipeline. This is already double the amounts raised for the whole of both 2011 and 2012.
IPOs have tended to be in specialist sectors such as peer-to-peer lending, distressed debt and property, renewable energy and infrastructure.
We’ll be taking a closer look into specialist alternative funds in the forthcoming August edition of Portfolio Adviser, out soon.
