IPO fatigue not likely to happen, Liberum argues


It’s been a bumper year for initial public offerings (IPOs) and stockbroker Liberum reckons there are plenty more to come.

The number of flotations in the first nine months of this year broke all records, both here in the UK as well as in the US and the Eurozone, but some are wondering how long the good times can keep on rolling.

Fear not, says Liberum.

“Rising investor fears about high energy prices and a growth slowdown have triggered questions about the sustainability of the IPO boom we have seen so far,” the broker said before going on to say that its analysis shows that there is no such thing as IPO fatigue and that the main driver of new listings activity are past stock market returns.

Sure, the rate of new admissions to the market is likely to tail off in the fourth quarter of this year, Liberum predicts, but only to levels seen in 2018/19, both of which were good years for IPOs.

For the United States, Liberum forecasts total IPO volume of US$93.2bn in 2021; for the Eurozone EUR31.6bn and for the UK GBP14.7bn. All of those are the highest levels recorded since Liberum started keeping records in 2005.

Not only has the number of IPOs risen but the size of the newly listed companies has risen year on year, Liberum noted.

Of course, some of this bonanza is a result of flotations that were scheduled to take place in 2020 being delayed because of the pandemic. On top of that, some planned new listings, such as the by controversial brewing company BrewDog, have been yanked recently because of market volatility.

Liberum whacked a pile of numbers from its IPO database and concluded that in all three markets (the US, UK and Eurozone), past IPO volume has very little impact on the demand and success for future IPOs, even in times of high issuance activity.

Stock market volatility has some influence, the broker conceded but the most important driver of IPO activity is past stock market returns, Liberum avowed.

“And with this outsized influence of past returns on IPO volume comes good and bad news. The good news is that despite all the investor fears we have seen bubble up in October, the 12-months return of the FTSE All-Share is still 26.6% (30.8% including dividends) and the return of the Stoxx Europe ex UK is 33.2% (36.6% including dividends). This alone should keep IPO volumes at reasonably high levels in Q4 2021 and early 2022,” Liberum’s note said.

“The bad news is that the environment for some sectors has materially deteriorated. After the last couple of months, IPOs in the retail or consumer sectors, in general, will likely be postponed until a better pricing environment is available. Meanwhile, IPOs in the energy, renewable energy, and financial sectors face a much better environment than even three months ago,” it argued.

Swings and roundabouts, in other words.

“As is so often the case, the talk about the death of the IPO market is vastly exaggerated. While Q4 will see fewer IPOs and lower volume, we are basically just going back to 2018/2019 levels which were still healthy years for new issues and stock market debuts,” Liberum concluded.


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