Very occasionally I look at flotations for investment ideas.
I realise flotations come with sensible wealth warnings (why should you buy when the owner is selling?), but every great stock floated at some point (Microsoft etc).
I think if you avoid private-equity disposals and companies yet to reach breakeven, then the rest could be worth at least a quick look. Sometimes new flotations go to ridiculous share-price heights as they do not have any past shareholder disappointments to hold them back.
I used SharePad to list every LSE flotation since the start of 2020:
47 names appeared:
|TIDM||Name||Float date||Market Cap (m)|
|WPM||Wheaton Precious Metals Corp||28/10/2020||£13,670.6|
|THG||THG Holdings Ltd||16/9/2020||£7,323.5|
|AUY||Yamana Gold Inc||13/10/2020||£3,660.2|
|N91||Ninety One PLC||16/3/2020||£2,190.5|
|BYIT||Bytes Technology Group PLC||11/12/2020||£849.9|
|CRE||Conduit Holdings Ltd||1/12/2020||£823.7|
|SPEC||Inspecs Group PLC||27/2/2020||£347.4|
|FRP||FRP Advisory Group PLC||6/3/2020||£269.5|
|HOME||Home Reit PLC||12/10/2020||£256.8|
|PRE||Pensana Rare Earths PLC||6/7/2020||£197.5|
|IES||Invinity Energy Systems PLC||2/4/2020||£174.8|
|SBI||Sourcebio International PLC||29/10/2020||£171.4|
|SYME||Supply@Me Capital PLC||23/3/2020||£167.1|
|ELIX||Elixirr International PLC||9/7/2020||£150.2|
|FNX||Fonix Mobile PLC||12/10/2020||£142.5|
|RNEW||Ecofin US Renewables Infrastructure Trust PLC||22/12/2020||$128.4|
|VRCI||Verici Dx PLC||3/11/2020||£124|
|CLX||Calnex Solutions PLC||5/10/2020||£102.4|
|GEM||Gemfields Group Ltd||14/2/2020||£95.9|
|AEXG||Aex Gold Inc||31/7/2020||£89.8|
|ABDX||Abingdon Health PLC||15/12/2020||£89.5|
|SBSI||Schroder Bsc Social Impact Trust PLC||22/12/2020||£77.6|
|SBO||Schroder British Opportunities Trust PLC||1/12/2020||£73.7|
|TGR||Tirupati Graphite PLC||11/12/2020||£62.8|
|VARE||Various Eateries PLC||25/9/2020||£61.9|
|CCZ||Castillo Copper Ltd||3/8/2020||£41.1|
|HE1||Helium One Global Ltd||4/12/2020||£39.1|
|MODE||Mode Global Holdings PLC||5/10/2020||£38.3|
|BRSD||Brandshield Systems PLC||1/12/2020||£35.4|
|CMET||Capital Metals PLC||12/1/2021||£33.6|
|GILD||Guild Esports PLC||2/10/2020||£30.3|
|WCAT||Wildcat Petroleum PLC||30/12/2020||£21.6|
|VCAP||Vector Capital PLC||29/12/2020||£16.2|
|IIG||Intuitive Investments Group PLC||14/12/2020||£10.4|
|LEX||Lexington Gold Ltd||8/12/2020||£9.4|
|PALM||Panther Metals PLC||9/1/2020||£8.5|
|OHG||One Heritage Group PLC||23/12/2020||£8.4|
|PNPL||Pineapple Power Corporation PLC||24/12/2020||£6|
|MMM||Mining, Minerals & Metals PLC||6/3/2020||£2.9|
|CRTM||Critical Metals PLC||29/9/2020||£2.5|
|AMOI||Anemoi International Ltd||26/10/2020||£0.9|
To whittle down the list, I excluded the 27 names with sales of £1m or less.
I then excluded Calisen due to it being under offer. I also excluded the following companies because I am not a great fan of their sectors:
- Wheaton and Yamana – Mining
- Ninety One – Investment management
- FRP – Professional services
- Elixirr – Management consultancy
- Gemfields – Gemstones
- Various Eateries – Restaurants
That left 12 companies to consider.
I then excluded 5 companies – Bytes, Sourcebio, Fonix, Kooth and Otaq – on the basis of not being led by founder management. I do think the best flotations are new companies in new fields led by entrepreneurs.
I then excluded Vector Capital as its founder (and family) continue to own 81% of the shares, leaving a tiny £3m free float for everybody else.
So that left me with six ideas:
- THG – E-commerce, beauty/nutrition
- Inspecs – Spectacles and glasses
- Heiq – High-performance textiles
- Calnex – Telecoms test equipment
- Abingdon Health – Healthcare services
- Brandshield Systems – Cybersecurity
All six have management shareholdings of at least 19%.
Now a very quick check for a potential ‘moat’ as per the operating margin within the admission documents and subsequent results.
The latest accounts for Abingdon and Brandshield showed losses, so I have skipped them. THG revealed a profit of £30m on sales of £1.1b, so a tiny margin.
HeiQ showed a 5% margin for 2019, but for H1 2020 showed sales of $30m and a profit of $11m – a 30%-plus margin. The sudden profitability improvement was due to increased demand for the group’s “functional chemical products”.
Inspec declared sales of $57m and a profit of $9m for 2018 and $61m and $8m for 2019 – so mid-teen margins. Results for H1 2020 then showed a Covid-affected loss.
Calnex declared sales of £13.7m and a profit of £3.3m for 2020, so a 24% margin. H1 2021 figures showed sales of £7.8m and a £2.5m profit, so a handsome 32% margin.
Calnex looks to be the most interesting of the 47 flotations. The market cap at 115p is £100m. Doubling up the H1 2021 profit gives earnings of c£4m after 19% standard UK tax. So not an obvious bargain now, but worth a further look. The business carries net cash, too.
Runner-up is probably HeiQ. The company has presented via InvestorMeetCompany and the accompanying slides indicate a medium-term goal of increasing revenue from $30m to $300m. That on its own makes HeiQ worth further investigation as well.