Window closes on floats despite stock market highs

After the party, comes the reality.

The FTSE 100 may have hit a record intra-day high last week – grazing 7,129.83 on Tuesday – but in the cold light of day, investors know that stocks have been overvalued largely because of the fall in the value of the pound.

Going into the weekend, it became clear that two key share listings were going to have to curb their ambitions and cut their float prices. This morning, we learned that Biffa, the waste and recycling company would list its stock at 180p a share – up to a third less than the proposed 220p to 270p price.

Misys, the British banking software company which is due to float in November, is also expected to discount its listing by as much as £1 billion this week, according to The Sunday Times.

Both companies are blaming uncertainty about the future of the UK economy.

Investors are wary about committing cash because of the fall in sterling, which is obscuring real valuations, and because it is not clear what sort of path the UK will take through Brexit. The Prime Minister’s apparent preference for a “hard” Brexit has unnerved fund managers.

In the last week, we have also seen fitness group Pure Gym shelve a stock market flotation because of “market volatility” and vehicle parts manufacturer TI Fluid Systems has postponed its float due to “uncertain market conditions”. Earlier this month, doughnut maker Krispy Kreme UK announced it was being bought by its American parent, rather than a mooted £200 million listing.

The implications of these pulled flotations will be felt beyond the bankers, book runners and PR fraternity in the City.

When businesses and entrepreneurs – particularly fast growth businesses – see that capital markets are closed, they make big decisions that have ramifications.

Ambitious people starting up a business may be deterred from doing so in the UK. If there’s no obvious route to exit – even for a short time – why not set up elsewhere, where markets could be easier to access if things go well?

Choosing to sell a business – perhaps to an overseas buyer – rather than float it, can lead to jobs going elsewhere. Investment decisions inevitably end up being made by management teams who are not rooted in the UK.

One company whose latest trading update will be closely watched tomorrow is Hays, the recruitment group, often seen as an early indicator of companies’ confidence in hiring staff, both in the City and in the public sector.

Businesses are now starting to deal with the very real implications of the Brexit process, which are affecting their costs, their spending and their recruitment intentions.

What was supposed to be a short window for stock market flotations before the US Presidential elections, now looks like a tricky ascent.

Stock markets might look robust since Brexit, but if the City does not trust their valuations, why should anyone else?

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