London losing its financial attractiveness-Investors
2023.03.06 03:53
London losing its financial attractiveness-Investors
By Ray Johnson
Budrigannews.com – Due to sluggish trading and low valuations, more businesses are choosing to float elsewhere, according to some investors and financial executives. As a result, London may lose its appeal for stock market listings.
A U.S.-only initial public offering (IPO), according to Arm, which is owned by SoftBank in Japan, is the “best path forward” for the chip technology company and its stakeholders, according to Arm.
That dashed government hopes that Arm, regarded as a British tech success story, would return to the London market, where it was listed prior to its 2016 acquisition.
Iain McDonald, the founder of the investment advisory firm Belerion Capital, stated, “There is no surprise that Arm has chosen New York, and many other businesses, particularly where the majority of their operations are in the United States, will follow.”
Arm made the announcement a day after CRH, a construction materials company with headquarters in Dublin (NYSE:) suggested that the company’s primary listing be moved from London to the United States.
AJ Bell’s head of financial analysis, Danni Hewson, stated, “It’s a move that seems to make sense for a company that does so much business Stateside, but it hints at further dissatisfaction with London’s ability to cut it as a global financial superpower.”
The world’s largest online betting company, Flutter Entertainment, announced last month that it would consult shareholders regarding an additional U.S. listing, dealing yet another blow to London.
McDonald cited reduced market liquidity and British support for growth businesses as reasons why Arm would “simply be acquired by better capitalised, higher-rated U.S. competitors” if they did not list in the United States.
Investment bankers assert that the lower valuations of London-listed companies compared to those in the United States contribute in part to Britain’s difficulty attracting initial public offerings (IPOs).
Companies trade at around 11 times 12-month forward earnings, while the index trades at 17 times. This gap has grown over the past decade.
According to Dealogic data, London ranked 13th in a table topped by China and the United States and accounted for just 1.1% of the total amount raised by companies in listing transactions in 2022.
It is currently ranked 21st in 2023, behind China once more.
However, data compiled by the London Stock Exchange (LSE) suggests that British companies that floated in New York have not always experienced the smooth ride they anticipated.
According to the LSE’s own calculations, the average share price of the 22 British companies that have floated in the United States over the past ten years has decreased by 38.6%.
One of Europe’s largest stock exchanges, one of the world’s largest foreign exchange trading venues, and the headquarters of numerous major global institutions remain in Britain.
LSE Chief Executive Julia Hoggett stated, “Arm’s decision should be a wake-up call for officials to make Britain a more attractive destination.”
Hoggett stated on Friday that the situation “demonstrates the need for the UK to make rapid progress in its regulatory and market reform agenda, including addressing the amount of risk capital available to drive growth.”
Britain has started a series of reforms with the goal of streamlining the rules for listing companies and making it easier for investors to put more money into stocks instead of bonds.
A government spokesperson stated in a statement, “The UK is taking forward ambitious reforms to the rules governing its capital markets, building on our continued success as Europe’s leading hub for investment and the second largest worldwide.”
The minimum free-float requirement for companies to list has been reduced, and additional reforms are in the works, including a review of the LSE’s Premium and Standard listing segments.
One person who is familiar with British efforts to secure additional listings stated, “The United States is a big competitor, but it’s important for companies to look at the data.”
