Is London set for IPO bonanza?

2021 looks like it could see a strong start for the London IPO market with the announcement of a couple of new issues in the wake of the recent signing of the trade deal between the UK and EU, at the end of last year.

2020 was a slightly more subdued year for IPO's in the London market with The Hut Group the highest profile one to come to market, when it launched back in September at a premium from its 500p offer price, and a £5bn valuation.

Since then, THG Holdings has gone from strength to strength, with revenues just above £1.1bn in 2019, a rise of 24.5% on the previous year. THG's main strength is its technology and operating platform called THG Ingenuity which is used by big blue chip corporate brands like Nestle, Procter and Gamble and Johnson and Johnson for their ecommerce operations. It is also an on-line retail business which operates brands like Lookfantastic.com and ESPA which is a luxury skin and body care company.

This past couple of weeks we've heard from the likes of Moonpig Group and Dr. Martens that they are looking to float in the next few weeks.

The last twelve months have been a boon for online retailers and Moonpig Group, the online digital greeting card maker has seen a surge in popularity amidst the various lockdowns and restrictions. This growth in its business appears to have prompted the realisation that in order to expand they will probably need to raise extra capital.

It is expected that Moonpig will make 25% of its share capital available to list when the company launches on the London Stock Exchange with a valuation expected to be in the region of £1bn or more.

The latest accounts show that revenues for the end of last year to April 30th increased to £173.1m, a rise of 44%. It stands to reason that the revenues for this year should come in much higher.

Even allowing for the fact that Moonpig is likely to do well from the recent shift to online a £1bn valuation does seem a little on the optimistic side, and that's being charitable, particularly if you look at the likes of Paperchase which has gone into administration, and Card Factory which, while having a large High Street presence, both operate in a similar space.

Card Factory has a market cap of £140m, and its last full fiscal year ending 31st January 2020, generated revenues of £451.5m, as well as generating profits before tax of £65.2m.

In its most recent H1 trading update the effect of Covid lockdowns and various restrictions have been more noticeable with revenues falling by almost half to £100.5m down from £195.6m the year before, with a 64.4% rise in online revenue helping to absorb some of the worst effects, though that still wasn't enough to prevent a loss of £22.2m.

The company is now in talks with its banks after seeing a further loss of sales in December, which resulted in the loss of over 30% of its trading days this financial year. This loss for the year is expected to come in at around £10m, partly helped as a result of a 137% rise in like for like sales in its online channel.

Nonetheless the poor performance in this sector, which is traditionally very low margin, points to a difficult trading environment even without the additional costs of a big high street footprint.

Card Factory also came to the market by way of an IPO, all the way back in May 2014, pricing at 225p, and while the shares did well for a year or two rising to as high as 400p, it has been one way traffic down ever since, hitting a low of 22p at the end of March last year, before rebounding to current levels.

2014 was a decent year for UK IPO's with the likes of Patisserie Valerie, Poundland, Pets at Home, Just Eat and AO World all racing out of the traps. Of those five, only three of those are still around, with Just Eat getting absorbed by Takeaway.com, while up until last year, Pets at Home and AO World were still underwater on their IPO valuations, of 245p and 285p respectively. In the case of the latter two the pandemic has turbo charged their valuations, with AO World at one point seeing its share price fall as low as 48p less than a year ago. Now both companies have share prices above 400p.

Another IPO set to generate a lot of interest in the coming weeks is boot and shoe maker Dr Martens who are considering launching their brand for a public listing. The iconic brand, once a staple of the 1970's punk and skinhead scene is also mulling a float in February now that a good proportion of its business is being done online.

Private equity group Permira, which bought the brand in 2013 is said to be looking at options regarding a sale, with the business expected to be valued at close to a £1bn.

This also seems a touch on the optimistic side with revenues for the most recent six months to the end of September last year seeing a jump of 18% to £318.2m, as more consumers opted to purchase their footwear online, with the closure of a good proportion of High Street retail, which saw Clarks shoes go into administration at the end of last year. In its last full financial year, ending March 2020, revenues came in at £672m.

While the Clarks business was saved with a £100m rescue plan led by LionRock Capital, the main reason behind its demise was a weak online presence, which this new deal will hopefully address.

It is certainly true the DM brand, as it was colloquially known in the 1960's and 1970's, has retained a resilience that has spanned the decades, however the durability of the boots does appear to have declined in recent years.

The hope is that these problems have been addressed, while the motives behind the sale will also need to be addressed, almost one year after Permira diversified the business, paying £1.3bn for trainer brand Golden Goose at the end of February 2020.

Recent private equity sales have saddled newly floated businesses with lots of debt, which subsequently has proved too onerous to pare down, resulting in the subsequent failure of the said business, recent cases in point being Debenhams and the AA.

Let us hope that these new IPO's turn out to be the first of many for the London market this year, however their success is likely to be more dependent on obtaining a realistic valuation, than any economic recovery story over the rest of this year.