• Mark Watson-Mitchell

The IPO apocalypse - Edison Investment Research

Extracting value from the new issue slump

A toxic cocktail of slowing growth, rising inflation and belatedly hawkish central banks has resulted in the current dire performance of risk assets.

During risk-off periods, capital tends to flow to larger, liquid assets. Initial public offerings (IPOs) are generally more illiquid than longer-established peers due to lock-ins and newly established share registers.

It is therefore no surprise that the share prices of companies that listed in 2020 and 2021 have struggled, but what is surprising is the magnitude, with 84% of IPOs trading below their issue price.

Moves of this scale often present opportunities.

The move to liquid assets tends to lead to illiquid names getting mispriced quickly.

In its recently published report, Edison endeavours to identify value and investment potential against a valuation screen of companies that have listed in the US, European and UK equity markets since the beginning of 2020.

Source: Edison Investment Research

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