A City broker, Peel Hunt, has issued a warning that a significant number of companies might exit the London Stock Exchange within the next four years, driven by the acquisition interest from major buyers amidst the low valuation of businesses.
Peel Hunt pointed out the steady rate at which companies have been withdrawing from markets, with shareholders inclined to accept offers due to the UK markets’ subdued performance.
Observing the trends, there has been a noticeable reduction in the number of firms listed on the FTSE Smallcap Index, which includes companies outside the FTSE 350. From the end of 2018 to the end of last year, the count of these businesses, not counting investment trusts, dropped from 160 to 114.
According to Peel Hunt, if this trend persists, the FTSE Smallcap Index might lose its last company by 2028, a scenario that would also occur, albeit more slowly, if investment trusts were considered.
Charles Hall, the head of research at Peel Hunt, commented on the ongoing situation: “The rate of companies leaving the equity market is unyielding, and this is likely to persist, especially given the low valuations of UK firms.”
He suggested that an increased interest in UK equities, leading to higher valuations, could help preserve the Smallcap Index by making it more appealing for companies to list.
London has faced challenges in attracting new companies, while several existing listed businesses have either left or downgraded their presence in the city.
Notable examples include Tui, the travel industry leader, which has shifted its listing from London to Frankfurt, and the construction firm CRH, which transferred its primary listing from the FTSE 100 index to New York. Additionally, pharmaceutical company Indivior is contemplating relocating its primary listing to the United States within this year.
In another instance, We Soda experienced a setback last June when it had to withdraw its planned initial public offering (IPO) on the London Stock Exchange, citing “extreme investor caution” among UK investors. This IPO was anticipated to be the UK’s first significant one for the year.
Peel Hunt, in its recent trading update to shareholders, noted that market trading volumes remain subdued. The firm anticipates this trend to persist until there are substantial signs of recovery in the UK economy and a reversal in the trend of investors withdrawing funds.
