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What does it take to convince gloom-prone investors that the glass has more in it than they think? Ongoing debate about the likely impact of last week’s UK Budget aside, there are some encouraging signs of corporate health coming from the world of mid-sized investment banking.
Peel Hunt, a publicly traded advisory and trading firm, is one that has seen a marked pick-up. Its investment banking revenue for the six months ending in September was up by almost half on the same period a year earlier; pre-tax profit quadrupled, excluding one-off charges and the cost of share-based pay. Boss Steven Fine contends that, with the Budget finally out of the way, interest in dealmaking should recover.
Worries about the health of UK markets and the viability of London as a capital markets hub have taken several forms, from complaints over onerous rules stifling activity to fears that low valuations were providing a target-rich environment for predatory foreign buyout firms. Companies that could have floated in London have also been seeking higher valuations in New York.
That doesn’t mean optimism such as Fine’s is misplaced. There are a few green shoots. The UK has climbed to 11th in the global rankings for initial public offerings. That is its best showing since 2021, according to Dealogic data. Including funds raised by already-listed companies — a better gauge of its depth as a capital raising hub — it ranks seventh.
Speedy block trades also suggest an improving mood. Sales of big slugs of stock, which kick off when the market closes, have picked up in recent months. It takes on average just 24 minutes until lead banks can tell investors they have sufficient orders to cover the deal, by Peel Hunt’s count. While that isn’t the end of the process, it’s encouraging that investors are confident and keen enough to stump up so quickly.
It’s partly a question of scale. Shares in Peel Hunt and Close Brothers have been on something of a tear, up about a third in six months, or about as much as Goldman Sachs and Morgan Stanley in New York. But Fine’s company is, with a market capitalisation of around £130mn, tiny in comparison. The UK market doesn’t fare much better: the US has hosted 20 times as many IPOs this year as the UK.
Nonetheless, small companies matter if the goal is to turn around a market and an economy steeped in pessimism. If clients of Peel Hunt and Close Brothers start to regain their confidence, it should not be long before investors do too.
