New Companies to Watch

While the awakening of the somewhat dormant UK IPO market is encouraging, analysis shows that these offers are coming to the market at relatively expensive valuations

T. Rowe Price 8 May, 2014 | 12:30PM
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This article is part of Morningstar's "Perspectives" series, written by third-party contributors. Here, Justin Thomson, manager of the T. Rowe Price European Smaller Companies Equity Fund reviews the UK IPO market

The new issuance market in the UK is undoubtedly buzzing. The acceleration in the number of Initial Public Offerings, ranging from retail discounters to high end brands, is a sign of improving sentiment within the market. Already, total funds raised this year have reached $7.1bn which is comparable to activity levels seen back in 2007.

The high-profile IPO this year of Poundland (PLND) and Pets at Home (PETS) have spurred this frenzy in primary issuance, and now Pizza Express, British broadcaster Channel 5, and shoe designer Jimmy Choo are among other names speculated to follow suit.

While the awakening of the somewhat dormant UK IPO market is encouraging, our analysis shows that these offers are coming to the market at relatively expensive valuations. We therefore prefer to initiate positions in stocks only after rigorous research of companies’ books, management, business plans and the respective industries. Our approach has helped us to weather the market cycles over the last fifteen years.

Iberian Opportunities

Portugal’s private healthcare sector is, for instance, an area that offers some interesting opportunities. Recently, we participated fully in the attractively-valued IPO of Portugal’s largest private health provider, Espirito Santo Saude.

We think the market has overlooked the country’s growing reliance on the private sector, caused by the government’s decision to rein back healthcare spending after the 2008 financial crisis. The combination of a shortfall in public healthcare funding and the growing demands of Portugal’s ageing population have increased demand for private healthcare.

Moreover, the sector is likely to consolidate over the next few years given the inefficiencies within the incumbents and as smaller players struggle with recent pricing adjustments. The potential synergies of a consolidation should improve profitability.

In my opinion, it’s the uncovered sectors and names in the quiet corners that are the true gems. The winners are those that get there first.

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