Regulators are coming under pressure to improve pre-flotation disclosure of information to investors, following this week’s controversial listing of AO World, when shares in the online retailer jumped 33 per cent on its first day of trading.
AO’s pathfinder’s prospectus was circulated to potential investors on Thursday last week. The shares were priced on the following Tuesday and floated on Wednesday – giving institutions only four working days to consider the document.
The timetable was shortened because the shares had been pre-marketed and it had became clear that demand from investors would be high, said people familiar with the process.
But fund managers – through their trade body, the Association of British Insurers – have been urging the Financial Conduct Authority to push for the earlier publication of prospectuses, even though the rules are set at European level.
The ABI argues that publishing the prospectus earlier in the IPO process would enable investors to be better prepared and give more incisive feedback on the company and its valuation ahead of setting a price range.
“The AO prospectus did come late, which does worry you as it makes you think the company wants to get away with as little scrutiny as possible,” said the head of European equities at a UK fund management group on Friday.
Chris White, head of UK equities at Premier Asset Management likened the marketing process to last year’s Royal Mail float. “A lot of the shares went to a favoured list of investors who had been pre-marketed to, which left a lot of investors unhappy – including us,” he said.
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AO also refused to disclose to how much of its annual profit comes from selling product protection plans on appliances, on behalf of insurer D&G.
Its prospectus showed accrued income on AO’s balance sheet of £17.9m, primarily from the commissions it expected to earn on the plans, but the company would not say how much of this was recognised in its profits each year. People close to the group said investors who had bought shares were “comfortable” with the situation.
However, concerns over the AO flotation do not appear to have slowed the IPO bandwagon – with Poundland, the discount retailer, and Pets at Home, the seller of everything from rabbits to cat collars, both announcing their prospective valuations on Friday.
Poundland expects to be valued at up to £750m, while Pets at Home’s indicative price range gave it a market capitalisation of up to £1.3bn. Pets at Home will also come to the market with £275m of debt, giving it an enterprise value of up to £1.58bn.
Both companies have indicated price ranges close to those expected when it first emerged that they were considering a listing. The expected valuation of AO escalated in the months ahead of the float.
A lot of the shares went to a favoured list of investors who had been pre-marketed to, which left a lot of investors unhappy – including us
– Chris White, Premier Asset Mgt
ETX Capital, a financial spread betting firm, said it expected Poundland and Pets at Home to close significantly higher on their first day of trading. Bankers said the book on Poundland was already covered at a “good price”. There was also enough demand for all of the Pets shares, said people familiar with the situation.
But one institutional investor said he was surprised at the sorts of valuations being mooted. “I’m pretty amazed that people are paying these sorts of prices,” he said. “It probably makes me a bit more cautious about everything coming.”
Tomas Freyman, director of valuations at BDO, the advisory group, said flotations such as AO appeared to have thrown standard valuation models out the window. “Every company I speak to now is thinking of an IPO,” he said.
“Valuations are becoming more stretched and we are seeing a few more ‘blue sky’ companies trying to raise money, encouraged by the current buoyant market conditions,” said Premier’s Mr White.