The UK stock market isn’t working | Nils Pratley

GRAM“We are set to see more IPOs later this year,” said David Schwimmer, CEO of London Stock Exchange Group on Thursday. Good: it would mark a change from the droughts of 2022 and 2023 that have caused much distress about the health of the London stock market.

But in reality, the deep problem here may not be a shortage of newcomers. Rather, it could be indifference, or so it seems, towards the sub-billion-pound British companies that have been around for years.

The current extraordinary Bidding battle for Chippenham-based Wincantonthe latest listed logistics company in the UK, shows how the London market (or part of it) sometimes fails to value what it has.

An offer at a 52% premium to the previous share price would normally be considered juicy if it came at the end of a contested dispute, but Wincanton I got it on a day when a French shipping company, CMA CGM, offered 450 pence a share, or £567m, last month. Some Wincanton shareholders felt the offer was still too stingy (well done Aberforth), so the French opted for 480p to try and get their hands on the deal. But now comes a new suitor from the US, GXO Logistics, offering 605p.

That's 104% more than the old share price of 297p, which shouldn't happen if a market is liquid and full of active buyers and sellers. We are not talking about a biotechnology company that is difficult to value. Wincanton, with 20,000 employees, is dedicated to the warehouse and truck sector.

Yes, there have been a couple of complications in recent years – the loss of a contract with HMRC to monitor cross-border assets and a shortfall in the pension fund (now resolved) – but neither should have scrambled the market's collective brain.

Wincanton chairman Sir Martin Read understandably backed the original French bid on the basis that the company's strong financial performance had "not been reflected in the performance of its shares in recent years".

If Wincanton were an isolated case, one could shrug and say that pockets of undervaluation can occur in any market. But at Currys, the electrical goods retailer, a similar story is unfolding. From a previous 47p, the offers of the American hedge fund Elliott have reached 67 pence per share, an improvement of 42%, and the defense board is still resisting - rightly so, many of us would say (The Peel Hunt analyst reckons 80p is the point at which Currys would be forced to participate.)

Currys' largest shareholder Redwheel, which has backed the board, made an excellent point when it said there was a wider problem with a UK stock market "which no longer appears to serve its core purpose of price discovery and allocation." efficient capital".

Fund manager Ian Lance pointed out the folly of some big UK investment houses in allocating cash away from UK stocks, which are near record low valuations, and towards US stocks which are near record highs .

"Unless this changes, it seems likely that we will continue to see foreign corporate buyers stepping in to take advantage of depressed UK share valuations, with ownership falling into foreign hands and the number of UK listed companies continuing to decline," argument. .

It's hard to disagree. a launch for London It's not compelling if it involves paying your advisors a small fortune to get listed and then being ignored for years until a foreign predator shows up.

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In a rational world, perceived undervaluations would attract buyers and the problem would solve itself. Perhaps the vision of a 100% acquisition bonus will help at the margin.

But investor indifference toward small and medium-sized businesses is not new, and none of the proposed solutions appear transformative. It would be useful to force UK pension funds to show a greater home bias in their equity portfolios, but the obligation has its limits.

The proposal for a “British ISA”, with allocations only to UK-listed shares, would probably not shift significant sums. Consolidation across defined benefit schemes, to produce larger funds with an appetite to own more UK shares, will not happen overnight.

If Schwimmer has more radical ideas, we'd love to hear them. Sadly, he seems more interested in arguing that people like him (those who run big FTSE 100 companies) you have to pay more compete with their American rivals. That won't solve the problems at the other end of the market.

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