A Sympathy Card for an Upcoming Flotation?

Morningstar columnist Rodney Hobson will be steering clear of greeting this newcomer to the London Stock Exchange

Rodney Hobson 25 April, 2014 | 1:49PM
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The line of companies seeking to float on the London Stock Exchange shows no signs of drying up. It’s a nice, steady stream, and apart from Royal Mail (RMG) there is nothing so large that it might cause indigestion.

This is a vote of confidence, not only in the exchange but in prevailing investment conditions. While there is always the possibility that floats signal that the market is near to the top, the continuing stream suggests that there will be no immediate sudden collapse in share prices.

The implication is that while we will continue to see sharp lurches in the major indices the market is likely to continue sideways for the time being. I remain convinced that the next breakout will be upwards.

I’m not one for taking a punt on flotations and there is one looming that I will certainly avoid: Card Factory. I’m not keen on the High Street and the travails of Clinton Cards, which crashed into administration a couple of years ago, are too fresh in my memory.

Those of a more optimistic disposition can point to growing sales at Card Factory – but look for the pre-tax profits figure, not EBITDA, when the prospectus comes out.

My first concern is that only 25% of the company will be floated, leaving control in the hands of private equity. Secondly, proceeds are to be used to pay off just over a third of the debt, an admirable notion in itself but it leaves nothing to grow the business.

Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice. 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Royal Mail PLC498.30 GBX-1.72

About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.