Investors who put their money into newly listed stocks in 2023 faced losses, as challenging market conditions led to few success stories among initial public offerings (IPOs), as per AJ Bell’s data.
This trend was a continuation of a lacklustre 2022, which saw 42 new entries in the London markets. However, 2023 was even more subdued, with only 20 companies daring to go public.
Out of the stocks that debuted on the UK main market and AIM in the past year, merely nine yielded a positive return. On average, the group experienced an 8% loss.
AJ Bell’s investment analyst, Dan Coatsworth, commented: “2023 was not a favourable year for IPOs. The combination of soaring interest rates and high inflation dampened the risk appetite, making it tough for companies seeking to go public unless they had something exceptional to offer to attract new investors.
“Even strategies like offering attractive dividends weren’t effective last year, as investors found more appealing returns of 5% to 6% on cash savings accounts.”
The standout performer was Oneiro Energy, which managed to double its investors’ money, judging by the difference between its initial listing price and its closing price at the end of 2023.
Coatsworth added, “Oneiro Energy is actively seeking deals in the energy sector. It’s quite usual for investors to drive up the prices of cash shells – also known as SPACs or Special Purpose Acquisition Companies – in the hope of a lucrative deal. However, this excitement often fades once a deal is finalized.”
At the bottom of the performance chart, CAB Payments emerged as one of the worst-performing London IPOs in 2023, suffering a significant setback with a major profit warning shortly after its debut.
Coatsworth remarked, “It’s often advised that newly listed companies should aim to set modest expectations and exceed them in their first year to build a solid reputation. Unfortunately, CAB Payments seems to have missed this crucial advice.”
The year 2023 also saw the launch of two investment trusts. Ashoka WhiteOak Emerging Markets Trust made its debut on the London Stock Exchange, raising £30.5 million, and Onward Opportunities listed on AIM in March, securing £12.8 million. Both trusts reported a 3% return by year’s end.
There’s a growing trend of UK companies considering listings abroad, partly due to the underperformance of the UK market, which has been trailing its international counterparts since the Brexit referendum in 2016.
Listing overseas offers companies higher share prices and easier access to capital compared to the more challenging UK market, especially for attracting international investors.
In March of the previous year, Simon Gergel, manager of the Merchants Trust, shared with Trustnet that many were eyeing the US for its more lucrative listing payouts. Additionally, some established FTSE companies were contemplating a move, driven by the desire for higher valuations.
However, not everyone views this trend as problematic. In November, Fidelity’s Alex Wright told Trustnet that he wasn’t troubled by it: “There’s a lot of concern about why these companies are relisting in the US. The reason is quite obvious. The US market is fundamentally overvalued. It makes sense for companies to seek higher valuations there.”
