Transact FTSE 250 entry leads the way for platform IPOs

The entry of Transact parent Integrafin into the FTSE 250 index has been described as good news for rival platforms and wealth managers considering a listing.

FTSE Russell announced its quarterly review based on market capitalisation at the close of play on Wednesday.

Upmarket grocery business Ocado and gambling company GVC are among the FTSE 100 additions, while Integrafin has joined the mid-cap index, alongside Energean Oil & Gas, Premier Oil and Laird.

Integrafin received a premium listing in a £650m IPO on the London Stock Exchange in March.

Jason Hollands, managing director at Tilney, said Transact joining the FTSE 250 was a successful debut for a specialty finance company and was “undoubtedly” good news for other platforms and wealth managers who might be contemplating a listing.

Nucleus is reportedly considering a public listing, while AJ Bell has confirmed it is exploring an IPO later this year.

Hollands said Transact’s listing showed investor appetite for these types of businesses and the rich multiples that can be achieved.

Likewise, Architas investment director Adrian Lowcock said successful businesses in this space “will provide support for other companies looking to IPO” and provide investors with an opportunity to become shareholders in companies they use.

Peel Hunt analyst Stuart Duncan said Transact has performed particularly well since IPO.

“These are technology solutions so they’re highly scalable. They deliver high operating margins, strong cash generation and they’re also a growth part of the market. If you want to pick out three boxes investors love that’s probably them,” Duncan said.

Platforms’ growth is linked to assets flowing into multi asset and transfers from legacy pension products to more flexible arrangements, Duncan said.

Narrow escape

High street retailer Marks & Spencer’s (M&S) appeared to have avoided relegation from the FTSE by “the skin of its teeth” according to Laith Khalaf, senior analyst at Hargreaves Lansdown.

He said: “Reshuffles happen every three months though, so this is a stay of execution rather than a full pardon. M&S boss Steve Rowe is promising transformation and has been candid in admitting it’s a lengthy road ahead.

“However, the pace of disruptive technological change means making M&S special again is a moving target, and management are taking aim from a long way out.”

Hollands did not think the iconic UK retailer’s fall from grace revealed much about the overall state of the economy.

He said the outlook for consumer spending is improving with inflation falling and wages rising. He said M&S’s precarious position was more about the changing nature of retail, as more consumers buy products online.

“Indeed this was evidenced by Ocado entering the FTSE 100. M&S has maintained a fairly traditional retail model, with a physical presence on many UK High Streets and associated costs. It now needs to convince investors that its store closure programme can be dovetailed with other initiatives to reinvigorate its brand and achieve top-line growth through other channels.”

Woodford buying opportunity

Neil Woodford’s £606m Patient Capital Trust was also ousted from the FTSE 250 in the reshuffle.

Charles Stanley Directs Rob Morgan said the relegation may force some tracker funds to sell the investment trust and may dampen investor sentiment, therefore providing an interesting entry point for investment.

Shares have fallen from a launch price of £1 to around 74p, a 12% discount to the estimated net asset share price of 83p.

Similarly, Lowcock added: “This was expected but given the long-term focus of the trust it should not be a concern for investors what is more important is the performance of the underlying assets. Improvement there will reverse this and appease investors.”

Earlier this month, Blackrock upped its stock lending of Woodford Patient Capital Trust, raising questions about whether a short seller was betting against falls in the investment trust or one its large underlying holdings.

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