AS I SEE IT: TERRY MURDEN says Scottish firms should build an affinity with the stock market
Scotland is likely to re-gain a couple of FTSE 100 constituents this week when Abrdn and Weir Group complete their rehabilitation. Unfortunately, three firms will soon be lost from the stock exchange amid concerns that newcomers may be finding it tough to satisfy the demands of the public markets.
In Abrdn’s case, promotion will represent a reversal of fortune for a company that lost 40% of its shares up to its relegation from the index in September, and for CEO Stephen Bird who has endured some aggressive interrogation of his reshaping and rebranding strategy that raised questions about its long-term future as an independent business.
After a long run of fund outflows, recent data suggests the firm enjoyed strong inflows in October, its best month for a year, while two broker upgrades have helped improve the mood among investors and its value has risen rom £3bn at the time of ejection to £4.4bn.
Among those expected to leave the market next month is Parsley Box, chaired by Scottish businessman Chris van der Kuyl, which was floated in March last year but lost almost its entire value on the Alternative Investment Market in less than 18 months because of a flaky strategy, a series of weak trading updates, and an unwillingness of investors to pour good money after bad.
It says it will seek to raise capital through the private sector, a message echoed last week by Glasgow data company DeepMatter which is also cancelling its shares after investors advised that it could more easily raise money as a private company.
Scotland’s relationship with the stock market has always been a testing one. Big names such as Bank of Scotland and Scottish Widows (now both part of Lloyds) and General Accident (absorbed into what became Aviva) once graced the market columns along with a smattering of whisky firms such as Highland Distillers and Macallan. Stagecoach left earlier this year and will be joined by the expected departure of sausage skin manufacturer Devro, following a £540m agreed bid from a European group.
It leaves an already thin group of Scottish quoted companies looking even more threadbare. One simple theory why so few Scottish firms take the stock market option has been that emerging entrepreneurs in the greater London area are more likely to have established contacts, even family links, in the City and be familiar with the routine, while Scots see it as something other companies do.
Scots traditionally sourced growth capital from bank debt, though there has been a growing attraction in taking the equity route, albeit mainly private, which is likely to become more popular as interest rates rise.
This trend was reflected in recent figures from the British Business Bank showing £411m was invested in emerging Scottish firms between January and June. This is more than the same period last year, meaning volumes are on track to exceed last year’s record of £540m, despite expectations of a slowdown in the second half.
As Paddy Graham of BGF told me recently, company owners are also being urged to sell more equity rather than sell their companies.
He says companies sell too early and by selling more equity he says they can scale up their enterprises and share a bigger bounty when they do decide to exit, either through a trade sale – or even a flotation, also known as an initial public offering (IPO).
Sentiment towards a market listing is not helped when stories emerge of share prices collapsing, and all of a company’s affairs being forcibly aired in public.
Despite concerns over the cost of floating, maintaining a listing and having to devote resources to the listing authorities, there are good things about being a public company. For starters, it puts the business on the radar of everybody from investors to customers. At the very least, the regular media coverage is free publicity.
Generally speaking, it has not been a vintage period for IPOs – Deliveroo and Made.com were among those which have suffered a tough reception from investors – though it’s rarely the market that is at fault.
Calnex Solutions, the Linlithgow telecoms equipment firm, and the Renfrewshire financial markets software firm Beeks Financial Cloud, are two of the more recent Scottish IPOs that are thriving as public companies because they have built a solid presence in expanding sectors. Put simply, a company’s ability to deliver its promises will determine whether its value soars or sinks.
The stock market may be a brutal environment, but it rarely deceives.
Terry Murden held senior positions at The Sunday Times, The Scotsman, Scotland on Sunday and The Northern Echo and is now editor of Daily Business