London stock market shows resilience amid IPO downturn

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London stock market shows resilience amid IPO downturn
Credit: © Reuters.

Despite facing economic challenges and a struggling IPO market, the London Stock Exchange (LSE) has demonstrated resilience this year. Listed companies on the LSE have raised £14.6bn in follow-on equity issuance in the first nine months of 2023, outperforming other European markets, according to data from PwC. This resilience comes after a challenging period for new listings, with only £953m raised from IPOs in the first nine months of this year, compared to 34 IPOs raising £1.16bn during the same period in 2022, as reported by EY.

Cities such as Budapest and Istanbul have surpassed London in IPO rankings, contributing to the city's challenges. Additionally, London has seen potential exodus of 30 firms worth over £100m and tough competition from New York. The flotation of CAB Payments has been disappointing, further exacerbating the situation. Despite these setbacks, UK start-ups have managed to lead in VC funding against European rivals, raising $15bn in 2023 according to HSBC Innovation Banking and Dealroom's data.

City Minister Andrew Griffith remains optimistic about London's markets despite these challenges. Griffith highlighted reforms such as merging the standard and premium segments of the market, aimed at boosting demand for UK listed equities and stimulating more capital raising in London.

However, some companies like WE Soda have criticized what they perceive as conservatism among London’s investors. In contrast, PwC analysts believe that some aspects of the European equity market have normalized, as shown by London firms' ability to attract investor funds again. This is seen as an indication of investor appetite for equities and is expected to positively impact future IPOs in London.

In a significant move towards supporting startups, top venture capital firms are backing a plan to direct pension funds into startups. 20 firms, including Octopus, Balderton, and Lakestar, have signed the "Venture Capital Investment Compact". This Treasury-backed initiative aims to channel £50bn into unlisted companies by 2020. This aligns with a commitment by nine leading UK pension money managers to allocate five percent of their assets to startups by 2030.

Despite the allure of private markets increasing as London's valuations lag, with Apple (NASDAQ: AAPL )'s value outstripping London's top 100 firms, the city also hosts Aquis, a smaller bourse. An uptick in overseas buyers targeting UK firms and a hard tech trend in funding rounds present new dynamics. However, London currently ranks outside the top 12 globally in IPOs.

InvestingPro Insights

Diving into the InvestingPro data for the London Stock Exchange (LSE), the company's market cap stands at a substantial $56.15 billion USD. The P/E ratio is currently 41.57, indicating a high earnings multiple. This suggests that investors are willing to pay a high price for the company's earnings, reflecting optimism about its future prospects.

In terms of revenue, LSE generated $10.4 billion USD in the last twelve months as of Q2 2023. This represents a growth of 12.89%, demonstrating the company's ability to increase its earnings. The gross profit margin stands at a healthy 86.17%, indicating efficient operations and a strong ability to generate profits.

InvestingPro Tips shed light on the LSE's financial health and future prospects. The company has a high earnings quality, with free cash flow exceeding net income. This suggests that the company is generating more cash than is required to run the business, providing a buffer for potential downturns. Additionally, LSE has raised its dividend for 8 consecutive years, indicating a commitment to returning value to shareholders.

InvestingPro offers a wealth of further insights and tips for investors. For instance, there are 11 additional tips related to LSE, providing a comprehensive analysis of the company's financial performance and potential investment opportunities. This highlights the depth of analysis available from InvestingPro, which can be invaluable for investors seeking to make informed decisions.

In conclusion, the data and tips from InvestingPro provide valuable insights into the financial health and future prospects of the LSE. Despite the challenges faced by the company, these insights suggest a positive outlook for the company's future.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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