IPO Outlook 2022: Who's Floating Next?

After a turbulent 2021 for IPOs, we look ahead to 2022's expected floatations, reviewing the good, bad, and downright ugly of public listings.

James Gard 14 December, 2021 | 10:19AM
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Posted at the bottom of every investment marketing brochure are the words “the value of investments can go down as well as up and investors should be aware they might not get back the full value invested”, or something similar.

Investors in UK IPOs this year will have been reminded that is no mere “small print”. Not all floats have been disappointing, but looking at the list of winners and losers suggests, from a retail investor’s point of view at least, there’s an element of luck in picking the right one.

In this round-up, we’ll look back at 2021’s IPOs and ahead to 2022’s likely floats, both here and overseas. While the appetite for listing in London, New York and elsewhere remains strong, this year seems to have dispelled the idea that an IPO represents easy money for those getting in on day one as a public company.

Deliveroo Doesn't Deliver

Investors are right to be wary of IPOs, or at least very selective, after a number of high-profile disappointments since 2020. Deliveroo’s flop (ROO) hasn’t helped sentiment, neither has The Hut Group (THG). THG was strictly speaking a 2020 float, the biggest for the London market for years. But the fallout from this initially successful IPO still casts a long shadow over the UK listings market.

We’ve gone into detail about the timeline of events here but to summarise: this successful IPO saw shares surge way above their offer price and was tantalising close to being a homegrown UK tech success story. But it’s been downhill all the way this year, with shares off 77% in the year to date. Now the founder and chief executive, Matthew Moulding, says it was a mistake to list in London.

Some institutional investors, at least, are sticking with THG. Early backer Chrysalis Investment Trust (CHRY), which has a 5-star rating from Morningstar, thinks the investment case in THG remains the same as it did at IPO, that there is “significant upside potential” in the shares, and backs the various changes the THG board has announced. Crucially, it’s bought more shares in the company.

Let’s look in detail at how other UK listings have fared in 2021. We are using as a starting point the price that shares were offered to investors as that’s a reasonable entry point for the retail market (if they are offered shares directly), rather than the opening price on the first day. (More on the timeline of an IPO and how pricing can move around here.)

Investors in food delivery firm Deliveroo had high hopes, and shares were priced at £3.90, but are now at £2.22 after a surge earlier in the summer; the price would have to rise by around 70% for those who bought at IPO to break even. Morningstar analysts, who prefer Just Eat Takeaway (JET) in this space, think Deliveroo shares are worth £3.50. A recent EU ruling on workers’ rights has taken the wind out of this sector.

Likewise, a lot was pinned on cybersecurity firm Darktrace (DARK), which floated two months’ later, and it seemed to break the curse of the 2021 UK float. Shares were priced at £2.50 and had nearly quadrupled to £10 by September. But shares have been on the slide since, pushing the company out of the FTSE 100, and now trade around £4.

While initial investors have been on a volatile ride, they are still in the black if they paid £2.50. Money transfer firm Wise (WISE) priced shares at £8 in July, but after a strong run in the first few months, they are still below this.

There have been a few successes: bootmaker Dr Martens (DOCS) and digital card company Moonpig (MOON) are still above their offer prices, and most recent large float Oxford Nanopore (OTN), formerly in Neil Woodford’s Patient Capital Portfolio, has made a roaring start to life as a public firm, rising from £4.25 to over £7 per share.

Crypto and Stonks

A UK investor could be forgiven for thinking the grass is greener elsewhere – sp how have high-profile floats fared in the United States and beyond?

Two US floats looked to tap into key market trends, the rise of cryptocurrencies and day trading. Crypto exchange Coinbase (COIN) looked like a strong contender for a blockbuster IPO; shares were priced at $250, and despite a strong run in November, they are still below the offer price.

Morningstar analyst Michael Miller assigns the shares a fair value of $225 and advises caution, particularly as Coinbase will be correlated with notoriously volatile crypto markets:

“Coinbase has built a strong competitive position for itself, but without more confidence in the long-term viability of cryptocurrency as an asset class there is too much potential for Coinbase's returns on invested capital to rapidly evaporate for us to award the company a moat," he says.

Trading app disruptor Robinhood (HOOD), meanwhile, was also hotly anticipated given the hype over meme “stonks”. Can you guess what happened next? Its shares are now below their offer price of $38, trading around $19. Humbled office space provider WeWork also finally floated this year, but not before it had merged with BowX.

Looking further afield, it hasn’t been plain sailing in emerging markets either. India is in the middle of a stock market boom that has drawn in retail investors. India’s Just Eat, Zomato (ZOMATO), has been on a strong run, with shares rising from a 76 rupee offer price to around 140 rupees now. Shares in Payment firm Paytm (PAYTM), however, are still below their offer price. 

Is TikTok Up Next?

A new coronavirus variant, inflation, supply chain problems and monetary tightening are all factors that company founders and their backers have to take into account when deciding to float in 2022. Still, money is cheap, tech companies are assigned high valuations and stock markets are at high levels.

In the US, special purpose acquisition companies (SPACS) are still all the rage as a means of floating – indeed, a certain former US President is preparing to inflict his social media company on the world via that means. So, despite the patchy record of 2021’s biggest floats, investors should be braced for yet more high-profile private companies going public.

Broker City Index has compiled a long list of possible global floats and it highlights social media newbie TikTok, message board Reddit, payment firm Stripe and investment platform eToro among the big names.

In the UK, brewing disruptor BrewDog is expected to list, having courted retail customers for years with the chance to buy shares as well as beers, though it may have to do better than its promise of a "solid gold" beer can that turned out to be largely made of brass. Moreover, the company is still nursing a hangover after former staff complained of poor treatment, which led to founder James Watt issuing a public apology.

With all these floats, the “caveat emptor” rule should apply. And, while Buffett says “buy what you know”, just because you use a product or service doesn’t mean its shares are a buy. Recently our guest columnist Imran Anwar, who steered The Hut Group into public life, revealed the difficulties faced by companies when they float. And what makes a successful float anyway? Just because a company’s shares surge initially, that doesn’t mean it's a long-term win. Remember Twitter (TWTR)? Its shares bounced when it floated in 2013, but they are barely 10% higher since. IG's chief market strategist Chris Beauchamp says IPOs are no different from any other investments and have to be judged on their own merits, not the prevailing hype. Wise words indeed.

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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James Gard

James Gard  is senior editor for Morningstar.co.uk


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