A rash of new issues has erupted on the London stock market, offering investors a varied menu of boutique banking, housebuilding and fancy footwear. The German investor Joh. Benckiser is hoping that the celebrity cachet of the Jimmy Choo brand will spread some glitter over its shares when it lists next month. However, the ambitions of sellers will need to be tapered to meet the mood of disgruntled and irritable fund managers.
After a frantic spring season, the IPO market in Europe hit the buffers. There were concerns about hot valuations and an unexpected fright over the possible dismemberment of the United Kingdom. But the Scottish electorate's decision to preserve their union with Britain and the pleasant mood enhanced by unusual late summer warmth in London has emboldened corporate financiers to ask for more. The supplicants include Aldermore Group, a retail bank that is nipping the heels of the U.K.'s lumbering high street giants, the Edinburgh house builder Miller, the roadside auto assistance company RAC, and Jimmy Choo, which is eyeing further Asian expansion.
The promoters of Jimmy Choo are expecting a valuation of about £700-million ($1.2-billion) for a business that had sales of £282-million and earnings of £47-million last year. There are plans to open 10 to15 stores annually, mainly in Asia where, surprisingly, the company has few outlets. A multiple of about 13 times current year EBIT doesn't sound too steep compared with last year's celebrity fashion accessory float, Moncler, which was sold on a forward multiple of more than 20 times earnings and enjoyed a 50-per-cent price surge on its debut.
So, you might ask, what's the difference between thousand-dollar shoes and thousand-dollar down jackets? The answer is that footwear is as finicky as feet. The need to stock so many shapes and sizes is a burden on the operating margin and it may explain why the giants of luxury goods, such as Richemont and LVMH, have not, so far, been chasing shiny shoes. The market mood, albeit better than it was a month ago, is far from celebratory.
Across Europe, there are some two dozen flotations in the pipeline, including Rocket Internet, a German venture capital group that packages Internet start-up businesses and grooms them for development in Europe and emerging markets. Rocket wants to raise about €1.5-billion ($2.1-billion) while Zalando, a German Internet fashion retailer and one of Rocket's progeny, is seeking more than €600-million.
The hunger for capital is increasing but there is concern that the appetite for new share issues is limited, if not sated. The U.K. stock market raised more than £15-billion in new issues in the first half of the year but the experience was not a joy for everyone. There have been many duds with poor market debuts with shares trading below issue price, including Saga, the retirement services group, and Pets at Home, an online retailer.
So concerned was BlackRock about the spate of failed flotations, promoted by private-equity owners, that the fund management colossus sent a round robin e-mail to investment banks in August, suggesting that they consider the reasons why new issues had flopped and the failure of the stock market novices to achieve their forecast and target earnings.
Still, the issues keep coming and at least investors will not be starved of choice, even if they will be denied the certainty of a return. Rocket wants funds for expansion but the financial record gives pause for reflection with many of its core investments showing losses. The prospectus states: "Nearly all of our companies have limited operating histories, are significantly loss-making, have a negative operating cash flow, require significant capital expenditure and may never be profitable or cash generating."
Whether it's fancy shoes or shares, what looks good does not always feel comfortable, over the long run.
Carl Mortished