Shawbrook Bank: The return of London IPOs?

It was announced by The Times this week, that the private equity owners of UK retail and commercial bank, Shawbrook, are seeking to reinstate plans for the company’s public listing, potentially signifying a return of IPOs to the London stock market.

In 2022, owners BC Partners and Pollen Street Capital had previously explored listing Shawbrook with a targeted valuation of £2 billion. However, due to market volatility, these plans were abandoned later that year. Pollen Street had initially floated Shawbrook in London for £725m in 2015 before teaming up with BC Partners in 2017 to take the company private at a valuation of £868m.

The UK stock market now finds itself at an unprecedented low in terms of valuation, particularly when compared against global counterparts – notably, the more robust US market. The average PE ratio of a FTSE 100 company currently stands at 10.5 against 23.3 for the S&P 500. Of course, the US isn’t suffering from underlying structural challenges such as the lingering effects of Brexit and the UK doesn’t have any tech giants that are skewing the market.

However, a report released by Rathbones last month, in which regression analysis was used to provide a like-for-like comparison between the US and UK suggested that, all things being equal, a UK listed company in the same sector and with the same characteristics and expected returns of a US counterpart, would trade on average at a 22% discount. A substantial difference for no other reason than being listed in a different jurisdiction.

In October 2023, Charles Hall, Head of Research at Peel Hunt, said: “We are currently in a doom loop, where valuations are low, liquidity is reducing, investors are seeing withdrawals and there is little desire to IPO”, painting a rather bleak future for the London stock market if government reforms aimed at coaxing back investors fail to be implemented.

Even accounting for these uncertainties, markets have a tendency to return to their historic mean, presenting the intriguing prospect of a potential resurgence in UK stock prices. If the UK’s IPO market is showing tentative signs of revitalisation, this may be a precursor to a period of positive stock price adjustment and the beginning of the UK’s emergence from this so called “doom loop”.

Other companies beyond Shawbrook that are expected to float in the UK in the coming months include photo monetisation platform, Click A Snap; Kazakhstan’s Air Astana; London Tunnels, a company seeking to open up the World War 2 underground tunnels of the UK’s capital; cybersecurity company, Quantum; and personal computer maker Raspberry Pi.

Like Shawbrook, Raspberry Pi had also considered listing back in 2022 but decided in the end that market conditions were unsuitable for an IPO. This listing would mark a significant win for the UK, especially after a year in which several major companies, including the likes of Softbank-owned Arm Ltd., a jewel of Britain’s technology industry, chose the US as their main market for listing.

While it remains uncertain whether a true resurgence of London’s IPO market is imminent, the enduring strengths that make London an appealing global listing hub persist. As economic challenges, such as inflation, gradually ease and pent-up demand from companies seeking an IPO continues to increase, we may well see a market upswing in the latter half of the year.