Investors could be set to flock to the food and beverage sector in 2015 after growing disillusioned with high-growth company listings under-delivering on the IPO market last year, according to a new report.
The underperformance of a number of flotations - such as AO World, Card Factory and Game - had undermined confidence in new offerings, with the City now looking for more stable investments, BDO’s Food and Drink Report 2014 said.
“The market has probably had its fingers burned a little bit with some high valuations not delivering growth post listing, so there is an interest in investing in high-yielding, steady businesses - such as those in food and drink - which are a bit more defensive but maybe not as high growth,” added BDO corporate finance partner Jason Whitworth.
Despite poultry giant Moy Park and United Biscuits preparing floats in the second half, there were no food and drink admissions on the main London market in 2014, with investors primarily focused on fast-growing retailers and the tech and services sectors.
“There were a lot of names bandied around [Quorn, Weetabix, R&R, New England Seafood] and the challenge was the market could never have taken that many deals,” Whitworth said.
However, Moy Park is tipped to resurrect its listing plans this year, and he expects others to follow. “The UK food and drink sector is well placed to take advantage of the improving economy and there will continue to be increasing demand for investment in high-growth businesses driven by brands and product innovation.” “It was a standard response that IPO is paying high prices and therefore we will go to market and do a big listing. If you get under the skin not many would have been developed beyond initial discussions.”
He added the timing of a flotation was crucial, with the management teams at expanding companies such as Quorn focused on growth rather than an exit. “They have lots of growth coming through, which they will want to realise before deciding whether to go to market.”There were 137 IPOs on the London Stock Exchange in 2014, raising £14.6bn, in the most successful year for listings since the credit crunch.. “The UK food and drink sector is well placed to take advantage of the improving economy,” Whitworth said. “Whilst there remain challenges over margins, there will continue to be increasing demand for investment in high-growth businesses driven by brands and product innovation into areas such as healthy eating.”