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London Stock Exchange
S100 Presentation – May 2010
IPOs in the current market
May 2010
3
Why the London Stock Exchange?
• Choice: two routes for commercial companies to raise equity capital which are designed to suit different types of companies and their needs:
• Capital: major global capital market with c. £600bn equity assets under management*
• Liquidity: one of the world’s most active and liquid markets with a daily average traded value of £4.8bn in the year-to-date
• Profile: premium brand to further enhance your credibility and profile
Note: * represents data sourced from Ipreo as at 31 December 2009
M a i n M a r k e t
4
Employee Commitment
Capital for acquisitions
Capital for growth
Higher profile
Valuation & Public market for company’s shares
Capital to pay debts
Hard reasonsSoft reasons
Why do companies go public/quote on a stock exchange?
5
Choice of markets
6
Choice of markets
Main Market
Supports the capital raising activities of earlier stage
companies
Supports the capital raising activities of more
established companies
Exchange regulated market with NOMAD required at
all times
Regulated by the UKLA with a listing sponsor
required
1,253 companies 1,453 companies
Note: figures sourced from London Stock Exchange statistics as at 30 April 2010
7
AIM Companies
Nominated Advisers (NOMADs) – key roles:Assess suitability of a company
Pre-vet the admission documents Advise companies on the AIM Rules
AIM Regulation teamRegulate the Nomads and keep a close oversight of their operations
AIM – Unique Regulatory Framework
8
AIM – Key requirements
• Key Admission Requirements– Produce an Admission Document, approved by the Nomad
– Nomad and Broker required at all times
– No trading history record requirement
– No minimum free float requirement
– IFRS required for UK issuers
• Ongoing Requirements– Compliance with ‘AIM Rules for Companies’
– Corporate Governance – best practice
• Eligibility for inclusion in the FTSE AIM Index Series
9
RegulationThe UK Listing Authority (UKLA) is responsible for admitting securities to the
Official List
AdmissionThe London Stock Exchange is responsible for admitting securities to trading
ListingSecurities become officially listed on the Main Market of the London Stock
Exchange
Main Market – Regulated by the UKLA
10
Premium Listing (Shares)
Level o
f Disclo
sure
Potentially eligible for the FTSE UK Series
Main Market – Premium vs Standard
Standard Listing(Shares)
Standard Listing(GDRs)
• Sponsor required
• Unqualified 3 years of audited financials
• Control of assets
• Independent business
• Sufficient working capital
• Ongoing - Listing Rules & EU minimum
• No Sponsor required
• 3 years audited financials (or such shorter period since the issuer has been in operation and can be qualified)
• Working capital statement required, can be qualified
• Ongoing - EU minimum only
• Same as Standard (Shares) except:
o no working capital statement; and
o ongoing – more basic EU minimum,
Key differences
11
Capital raising activity
12Note: figures sourced from London Stock Exchange statistics
Capital raising activity
Basic Materials Consumer Goods Consumer ServicesFinancial Health Care IndustrialMining Technology Telecommunications
Main Market - Small Cap & Fledgling - 2007 to 2010 YTD
Basic Industries Consumer Goods Consumer Services
Financial Health Care Industrial
Mining Oil & Gas Technology
Telecommunications Utilities
AIM - 2007 to 2010 YTD
Totay money raised on AIM and the Main Market (£bn)
0
5
10
15
20
25
30
35
40
45
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
New Issues - Main New Issues - AIM Further Issues - Main Further Issues - AIM
7766
Further issues – AIM and Main Market
13
Main Market – capital raising activity
Sector distribution - new & further Issue 2010 YTD
Consumer Goods
Consumer Services
Financial
Health Care
Mining
Oil & Gas
Technology
Distribution of mkt capt - new companies 2010 YTD 8
1
2
0
3
0
1
5
1
2
0
1
2
3
4
5
6
7
8
9
0-2 2-5 5-10 10-25 25-50 50-100 100-250 250-500 500-1000 1000+
Money Raised (£m)
No
. of
com
pan
ies
Index 02 Jan 2007 14 May 2010 Performance %
FTSE Small Cap 3925.8 2868.66 -26.93
FTSE Fledgling 4415.1 4219.37 -4.43
DJIA 12474.52 10590.83 -15.10
Hang Seng 20310.18 20145.43 -0.81
DAX 6691.32 6056.71 -9.48
Comparative Index Performance
40
60
80
100
120
140
160
2007 - 2010 YTD
FTSE SMALL CAP FTSE FLEDGLING DJIA Hang Seng DAX
• 2009 saw a record £77bn raised on the Main Market including £76bn through further issues including Lloyds (£13.5bn), HSBC (£12.9bn) & Rio Tinto (£7.3bn)
• Total funds raised 2010 YTD: £4.2bn, £2bn raised via further issues
• Prudential seeking to raise £14.5bn new record rights issue
Note: index performance figures sourced from Bloomberg, all other figures sourced from London Stock Exchange statistics
14
AIM – capital raising activity
Sector distribution - new & further issues 2010 YTD
Basic Industries
Construction
Consumer Goods
Consumer Services
Financial
Health Care
Industrial
Mining
Oil & Gas
Technology
Telecommunications
Distribution of mkt cap - new companies 2010 YTD
0
1
4
7
5 5
2
1
0
1
2
3
4
5
6
7
8
0-2 2-5 5-10 10-25 25-50 50-100 100-150 150-200Money raised £m
No
. o
f co
mp
anie
s
Index 02 Jan 2007 14 May 2010 Performance %
FTSE AIM All Share 1060.7 707.8 -33.27
FTSE UK 50 5336.5 2712.19 -49.18
NYSE Alternext 1300.49 723.69 -44.35
FTSE SXG Catalist 154.12 127.45 -17.30
Deutsche Entry Standard 1105.41 620.19 -43.90
Comparative Index Performance
20
50
80
110
140
170
200
2007 - 2010 YTD
AIM 50 AIM All share NYSE Alternext Catalist Deutsche Entry Standard
• 2009 saw £5.6bn raised including £4.8bn including five over £100m
• Funds raised YTD 2010 £1.4bn, 753 further issues totalling £1.1bn including five over £50m
• Aim companies have operations across the globe in 95 countries
Note: index performance figures sourced from Bloomberg, all other figures sourced from London Stock Exchange statistics
15
IPO activity – 2010 YTD
Date Company Market SectorMkt cap
(£m)Funds raised
(£m)
7- May-10 Essar Energy PLC Main Exploration & Production 5,472 1,272
7-May-10 Avangardco Investments Public Limited Main Food Producer and Processing 676 127
19-Apr-10 Fidelity China Special Situations PLC Main Equity Investment 460 460
30-Mar-10 EMIS Group plc AIM Healthcare 178 50
24-Mar-10 Metric Property Investments plc Main Property 175 175
24-Mar-10 CPP Group plc Main Nonlife Insurance 400 150
24-Mar-10 African Barrick Gold plc Main Gold Mining 2,325 581
24-Mar-10 SuperGroup Plc Main Fashion Retailers 395 125
22-Mar-10 CSF Group Plc AIM Software & Computer Services 88 28
17-Mar-10 Promethean World Plc Main General Retailers 400 114
09-Mar-10 Sherborne Investors Ltd AIM Equity Investment Instrument 105 105
04-Mar-10 Digital Barriers AIM Digital Security and Surveillance 25 20
26-Feb-10 Equatorial Palm Oil Plc AIM General Industrials 14 7
24-Feb-10 Scotgold Resources Limited AIM Gold Mining 5.4 0.7
15-Feb-10 Kea Petroleum AIM Oil & Gas 37 6
12-Feb-10 Oxford Nutrascience Group plc AIM Food Products 8.1 1.75
09-Feb-10 Horizon Acquisition Company plc Main Special Purpose Acquisition Company 400 400
Note: table highlights selected IPOs on the LSE 2010 YTD
16
Capital markets & volatility
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
26,000
28,000
30,000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Mo
ney
rai
sed
on
AIM
& M
ain
Mar
ket
(£m
)
0
5
10
15
20
25
30
35
40
45
50
VIX
In
dex
(U
SD
) -
mea
sure
men
t o
f vo
lati
lity
New issues Further issues VIX
Money raised on AIM and Main Market compared with the VIX Index• There is a close historical correlation between IPOs and equity market volatility
• Equity market volatility has returned to levels which show support for IPOs based on historic trends
• Investors have recently shown appetite for strong growth stories where gearing is <2.5x and proceeds are not primarily being used for debt repayment
Note: money raised figures sourced from London Stock Exchange statistics & the VIX Index from Bloomberg
17
UK IPO cycle next to revive
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2001 2002 2003 2004 2005 2006 2007 2008 2009
2000
2500
3000
3500
4000
4500
5000
5500
6000
6500
7000
Full IPO AIM IPO Full 2nd AIM 2nd Y/E FTSE
IPO Market shut from H2 2008
2003 – 2007 Bull market
– Significant M+A boom funded predominantly by debt
– Equity issuance to also fund growth
2008 – 2009 New world order
– Massive balance sheet repair
Excluding mining and banks, 2008 -2009 issues at 2004/2005 levels
Issuance story
UK IPO cycle poised to revive ?
18
Valuation
Market growth potential Business should operate in a market with good visible growth over the medium
term
Strong competitive positioning
Business should have a strong competitive position in order to capture at least its share of the market growth
Investors will also want comfort that this market position is sustainable and that the barriers to entry / competition are sufficiently high
Strong trading record and earnings visibility
Business should be able to demonstrate a track record of revenue and profit growth, as well as free cash flow generation and visibility of future profit growth
Proven business model There is a proven business model that generates attractive financial returns, as
well as a clear vision for the strategic development of the business through organic or acquisition-led growth
Credible management team and robust corporate governance
Proven, high quality management team with a track record of operational and strategic success
Appropriate framework of corporate governance and systems and controls
Clear rationale for IPO
Purpose of the IPO must be clear so as to identify the use of IPO proceeds and / or benefits of listing
Credible investment proposition at fair value for incoming investors
Market / free float
Index inclusion and weighting are driven by a combination of market cap and free float
A combination of the % of free float and absolute £ free float are important The choice of which market to list on is a variable
Valuation – What Institutions look for:
19
Contacts
Mark Fahy
Senior Manager – UK Small & Mid Cap Companies, Primary Markets
London Stock Exchange
T: 0161 935 8301M: 07795 257 517E: [email protected]
20
Appendix
21
Choice of Markets
We offer four different routes to raise funds from the capital markets:
• Premium product• Established 1698• Listed and EU regulated market• £3.7 trillion combined market capitalisation, 1,453 companies
• Growth market• Established 1995• Regulated by LSE, unlisted and non-EU regulated market • £64.5 billion combined market capitalisation, 1,253
companies
• Specialist investment fund market for non-retail investors• Established 2007• EU regulated and unlisted market• £750 million combined market capitalisation*, 6 companies
• Specialist market for non-equity securities, primarily debt• Established 2005• Listed, but non-EU regulated market• 497 securities admitted
M a i n M a r k e t
Note: all figures sourced from London Stock Exchange statistics, 30 April 2010
22
Main Market – Premium Listing requirements
• Key Admission Requirements– Produce a prospectus for approval by UKLA
– Sponsor required (at admission only)
– 3yr trading record normally required, covering at least 75% of the business
– Clean annual report covering at least 3 yrs
– Min 25% of shares must be in public hands
• Ongoing Requirements– Compliance with the UKLA Listing Rules (e.g. class tests, related party rules,
Model & Combined Code)
– Compliance with EU Directives (e.g. financial reporting, disclosure of >3% shareholdings)
• Eligibility for inclusion in the FTSE UK Index Series