May 31, 2016

Pegler’s market report – 31.05.16: Initial Public Offerings (IPO) – update

As published in the Brighton Argus (31.05.16) Business on page 23 under the title Pegler’s Market Report:

Initial Public Offerings (IPO) – update

Upmarket fashion and lifestyle chain Joules, that specialises in colourful wellies and country-style clothes, enjoyed a stunning rise on its stock market debut, with its shares surging by 34p, or 21.3pc, to 194p, a welcome jump for investors who bought in to the retailer at the float for 160p.

Tom Joule, who built up the business after buying his father’s shop 17 years ago, used the float to slash his stake from 80pc to 32.2pc, while LDC, the private equity arm of Lloyds Banking Group, cut its holding from 20pc to 7pc. Mr Joule has undoubtedly done well from the IPO, having raised close to £50m. But the leap experienced by Joules on its debut suggests the stock was valued a touch too conservatively in the float.

A profit alert from Hostelworld, that has sites in Brighton, sent the online booking service tumbling 28.9pc to 183p, erasing more than a quarter of its value and taking the shares below the 185p price at which they floated at last October. The company has been hit by travellers’ terrorism fears and said: “Reflecting recent geopolitical events, particularly in Europe, trading over the second quarter has been at a level below our expectations.”

Shares in Marks & Spencer, which recently slumped after warning a turnaround will knock profits, came under further pressure as analysts continued to slash their forecasts. The experts downgraded the shares to “underperform”, making the following comments: “The latest evolution of M&S’s clothing and home offer looks well directed. However, despite several previous evolutions, M&S generates the same gross profits as it did 10 years ago, despite adding circa 15pc of space, and over £300m of cost. That points to structural headwinds that require more revolutionary decisions.”

Other retailers were on the rise after pleasing with their latest results. Pets at Home advanced strongly following annual numbers in which it lifted its dividend payout ratio from 40pc of profits to 50pc, while shares in bargain shop chain B&M gained after declaring a surprise special dividend of 10p a share alongside its figures.

Elsewhere the banks had one or two better days. The FTSE’s lenders have been singled out as particularly vulnerable to a Brexit vote, given that they may need to shift their headquarters in order to maintain access to European markets. Last week their shares enjoyed a bit of a revival as the perceived chances of a UK withdrawal from the EU has declined somewhat.

By David Pegler, Brighton Capital Management