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Brexit has ‘chilling’ effect on UK IPO market

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Initial public offerings have dropped 42 per cent year-on-year following the UK’s vote to leave the European Union.

The value of new listings in the third quarter totalled £948m in the third quarter, Henderson Investment Trusts analysis shows.

Henderson Opportunities Trust fund manager Colin Hughes says: “The chilling effect of the Brexit vote noticeably cooled companies’ enthusiasm to list on the stock market, and we have yet to see IPO activity reheat despite market conditions settling somewhat.

The poor third quarter follows a 14 per cent year-on-year slowdown in H1 this year, when 32 companies listed on the main market and AIM.

Hughes reckons activity in the lead up to the referendum was higher than it might have been if the City had predicted that a Leave vote was a likely outcome. The result caught many in financial services by surprise.

Financials have led listings this year, accounting for half of the 2016 total so far, including Clydesdale and Yorkshire Bank, Metro Bank, and CMC.

“New listings play a crucial long-term role in our financial system,” Hughes says, allowing entrepreneurs to raise cash and to replace companies that have been de-listed or acquired.

“For pension funds, insurance companies, and private investors alike they provide new options, either for growth, or to diversify portfolios, or both.”

However, Hughes says it is not all bad for investors. “It means it’s a buyers’ market: new listings have to compete for investor cash and that means keener prices.”

While, new listings are down overall, the AIM saw “solid” growth, according to Hughes, who says smaller companies are less sensitive to market conditions.

Values of listings on the AIM were up 47 per cent for the first three quarters this year compared to last year.

“Smaller companies tend to see more collaboration with fund managers in the book building process – they often won’t have direct listed competitors, so finding the right valuation is not just a question of comparing against the valuation of similar listed companies.”

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