How are UK IPOs performing in 2020 during the coronavirus crisis?

UK IPOs in 2020

• Eight companies have listed in London so far in 2020: three on AIM and five on the Main Market.
• This is largely in line with the same period in 2019, when nine companies listed between the start of the year and April 23, 2019. However, it is worth noting that the number of listings completed in 2019 was at its lowest level since 2009 as Brexit and the election produced uncertainty.
• They collectively raised just over £455 million in new funds and had a market cap on entry of £2.08 billion.
• Only one company, Calisen, has listed with a value of over £1 billion.
• Two of the listings, Barkby Group and Panther Metals, moved from the NEX Exchange, while one, Abal Group, relisted after completing a reverse takeover and becoming Supply@Me.
• While the number of IPOs has remained steady in the early part of 2020 the outlook for further listings this year looks bleak as the coronavirus pandemic could prompt firms to postpone IPO plans.

UK IPOs in 2020: what stocks have listed and how have they performed?

How to trade newly listed stocks

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Calisen IPO: the only major addition to the LSE in 2020

Calisen’s IPO is the largest of the year so far. The company listed in mid-February at a price of 240p per share, giving it a valuation upon entry to the Main Market of £1.3 billion, which was the bottom of its targeted value range.

The company remains loss-making but came to market with strong fundamentals. It primarily owns, installs and manages energy meters that monitor electricity and gas usage. The UK government’s ambition to put a smart meter in every UK household has driven the company’s growth over recent years. Calisen had around 3.5 million meters in its portfolio back in 2011 but now has over 8.6 million under its belt – 4.7 million of which are smart meters. All-in-all, Calisen thinks the UK will need over 51 million smart meters to have one in every household, giving it plenty of growth potential.

Despite Calisen’s IPO price being at the bottom of its targeted range, the share price has struggled to gain ground since listing. It has only briefly traded higher than its IPO price and sank to a low of just 111p on 18 March as wider markets plunged because of the coronavirus pandemic. Shares have recovered some ground since but are still trading well below the IPO price.

The coronavirus pandemic has hit Calisen like many other businesses. Lockdown measures means it has had to suspend all non-essential installations and only has a small team of engineers working on emergency call-outs. The firm was hoping to install 100,000 new meters every month throughout 2020 but has now withdrawn that guidance.

Although growth will be hampered, Calisen believes it is in a very strong position to weather the storm. Its existing meters will continue to generate cash for the business and fewer installations will mean its expenditure will fall. As a result, Calisen has said its net cashflow will actually increase during this time. It has nearly £79 million in cash, almost £985 million of available debt and cash still coming through the door – which could make Calisen a safe bet in the current climate.

Nippon Active Value Fund IPO: could coronavirus present an investment opportunity?

Nippon Active Value Fund (NAVF) listed on the specialist fund segment of the Main Market in mid-February. It was originally hoping to raise £200 million but only managed to stir-up enough interest to raise just over half of that figure. The closed-ended investment fund invests in listed stocks that make their money primarily from Japan.

NAVF’s share price has ranged from 102p to 97.75p since it listed but its share price has remained largely in-line with the IPO price. This is partly because the company is yet to make any investments so derives its value from the cash it has in the bank. NAVF originally said it intended to deploy all the funds it had raised within six months but that it would look to raise further funds from investors within the first year to prepare for the next round of investments.

The company says it would be ‘an understatement to say that market conditions have changed’ since it listed, but put on a bullish tone when it updated investors on March 20. It said it was a ‘good time to be holding cash’ and said the severe drop in Japanese equities presented an opportunity to invest. It said it had already converted most of its cash into Japanese yen and had invested over £29 million in around 15 companies. It is ultimately hoping to hold up to 20 companies in its portfolio, which means the next five additions will be ones with larger market caps.

NAVF is yet to reveal what companies it has invested in, making it hard to gauge the value of the business and present. The volatility in Japanese stocks and fluctuations in GBP/JPY could make it a rough ride for NAVF shareholders at first, but the coronavirus pandemic could also present a unique opportunity for this investment fund and its investors

Inspecs Group IPO: eyewear firm shrugs off coronavirus fears with listing

Inspecs Group joined AIM in late February, raising £23.5 million by selling shares for 195p each and giving it a valuation of just under £140 million. Unfortunately, it has never managed to trade above its IPO price since listing and sank to a low of just 145p on 8 April. Shares have bounced back somewhat since then but are still well below the listing price.

The company designs and makes eyewear frames for sunglasses, prescription glasses and safety applications. It makes frames that are either unbranded for other companies, under its own proprietary brands or those it licenses from other companies. It says it has an edge over rivals because it is a ‘one-stop-shop solution for global retail chains’. It operates in over 80 countries and generates less than 23% of its revenue from its home market.

Inspecs is loss-making but has delivered strong top-line growth and improved its profitability over the years. Annual revenue almost tripled over the three years to 2018, while its underlying earnings margin grew from 6.9% to 20.7%. Its latest figures, covering the six months to the end of June 2019, showed further revenue growth and its margin improve to 21.8%. One reason Inspecs has been able to deliver such growth over the years is because of its acquisition strategy, which it intends to continue as a publicly listed business.

The company has not provided an update on how the coronavirus pandemic could impact the business, but the fact it decided to go ahead with its listing at a time when the threat of the coronavirus was known suggests it has shrugged off any short-term fears in favour of its long-term prospects.

Mining, Minerals & Metals IPO: still hunting for an asset

Mining, Minerals & Metals (MMM) joined the Main Market in early March, raising just over £1 million by issuing new shares at 3p each. The company has no assets to speak of, so its value is currently derived solely from the cash it has in the bank. The fact it has around £514,000 in cash and a market cap of £1.1 million means it is still trading at a big premium to its net asset value, but those that have invested hope it can find suitable investment opportunities within the natural resources sector.

The size of the company means liquidity could be an issue, and the stagnation of its share price since listing is testament to that. MMM has not released an update since it listed but it could, like NAVF, benefit from weakened valuations in the current climate as it looks for new projects. It is highly likely that the company will find exploration-stage projects in Africa as this is where its directors have particular expertise - probably an asset that is deemed non-core by a larger mining outfit or one that has limited capital to grow because current owners lack the cash to invest.

It is early days for MMM, but the fact it has no assets to speak of means the coronavirus outbreak should have a very limited impact on the business. It can still search for projects and identify potential targets. Mining is a long-term game – it is not unheard of for a mine to take over ten years to move from exploration to production. This means investors should not only be prepared to play the long game but for the company to raise further equity to fund any development opportunities it does discover.

FRP Advisory IPO: the only one to shine

FRP Advisory joined AIM and raised £80 million by issuing new shares at 80p each, giving it an initial value of just under £195 million. FRP advises UK companies on their restructurings and is one of the largest firms in its sector. It also advises firms on mergers and acquisitions (M&A), debt, pensions, and conducts forensic investigations.

The company has been the strongest London IPO performer in 2020, with its share price currently trading 47% higher than the price set at the IPO back in February.

FRP came to market with a strong offering. It provided a strong track record showing double-digit growth in revenue and earnings over the last three years, cash conversion of over 90% and an ‘attractive dividend policy’ that aims to pay out 70% of the firm’s annual net profit. It secured institutional investors and over half of the business is owned by employees.

Notably, shares immediately dipped when FRP listed and only recovered in early April as most of the wider market was falling. Shares have since rallied and hit a high of 124p. The share price has not been driven by any news that FRP has released but on the assumption that the company will benefit in the current climate. Companies are racing to cut costs, restructure, source debt, and take advantage of weak equity prices with M&A, and that should fall right into FRP’s lap.

Barkby Group and Panther Metals migrate from NEX

Two companies that have listed this year have migrated from the NEX Exchange. NEX is an independently owned exchange that is quicker, easier and cheaper to list on than AIM, making it a perfect precursor for many that hope to move up the leagues later on. The fact they have already demonstrated they can sustain a shareholder base and have a track record to judge means it easier for firms to migrate from NEX to AIM than it is for companies looking to immediately list on the latter.

The first is Barkby Group. The hospitality company agreed to buy three companies in December for £30 million, which was largely paid in shares, and said it would raise new funds to fuel growth. It coincided its migration from NEX to AIM with the takeover, which formally completed in January. The new businesses include a commercial property developer in the South East of England and a wholesale firm that offers coffee and barista machinery. Barkby Group shares initially found ground and reached a high of 43.5p in January, but now trade below its IPO price after weeks of pressure.

The second is Panther Metals, which also moved from NEX to the Main Market in January. The company invests in or acquires natural resources sector and, so far, it has concentrated on gold. Its lead asset is the Big Bear project in Canada and gold prospects in the Northern Territory of Australia. The £823,000 it raised at 6p per share in the IPO was earmarked to develop these assets. Shares have lost considerable value since the IPO and are now trading at less than half the issue price.

Abal Group relists as Supply@Me

It may have changed its name and started afresh but this stock will be known to some investors already. It was originally called Imaginatik and sold management software until it sold off all of its assets in February 2019. It changed its name to Abal Group and became a cash shell under listing rules. This meant it had to complete a reverse takeover of a new business within six months. It failed to do that, which meant its shares were suspended in August. Once shares are suspended, a stock has another six months to find a target or they are forever cancelled from trading.

Not long after the suspension, Abal Group finally announced it had found a business it wanted to buy. Supply@Me is a fintech firm based in Milan that focuses on what it calls ‘inventory monetisation’. Companies in practically any sector can unload surplus stock to other firms through its system, allowing them to profit from extra stockpiles rather than incur costs and write-offs. However, it failed to close the deal in time and saw its shares cancelled in February. Although it took time to complete, the firm officially completed the acquisition and relisted in March. It bought Supply@Me for £224.5 million and paid this all in shares at a price of 0.69p. It then raised £2.2 million at 0.68p upon listing to help with development of its new business.

It has not been the best start for this company looking to start again. Its share price fell off a cliff about a week after the IPO and are now worth almost half what they were upon listing.

Supply@Me is based in Milan but is looking to ‘build a presence in London’ and roll-out its platform to other European countries. It’s system has already originated nearly €1 billion in prospective contracts for customers and the firm believes the total opportunity it is chasing is worth €1.9 trillion.

IPO contenders in 2020: how will the coronavirus impact new listings?

There were a number of big name firms touted to list this year, including the likes of Deliveroo and BrewDog, but it is widely expected that it will now be a poor year overall for IPOs. The one thing companies looking to go public want is certainty in the markets, as uncertainty draws attention away from them. For example, investors are more concerned with reducing risk and increasing exposure to safer assets in the current climate rather than looking at new entrants. Having said that, those with the right business model for the current climate, like FRP, have been successful when most newly listed businesses have seen their share prices plunge.

Right now, most companies are in survival mode and many have had to disappoint shareholders with news that dividends are being scrapped and they are battening down the hatches. For those that are considering listing, they will be thankful they don’t have shareholders to answer to during this time of crisis and are better off waiting for things to start returning to normal. It isn’t that a company couldn’t pull off a successful IPO right now, just that it will have a much better chance later this year or even in 2021. There is a chance there could be a backlog of potential listees ready and waiting to go in 2021 depending on how long the disruption lasts.