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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Dear reader,
After a week off, I’m catching up on the Lex column’s output myself. And there is plenty to chew over. You can find all of the team’s output here, covering everything from broad investment themes to specific deals. Here are some of my picks from recent days.
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Is big always beautiful when it comes to investing? Just 10 mega-stocks account for a fifth of the MSCI All-Country World index, the highest concentration in decades. On both sides of the Atlantic, a small crop of big companies seem to be holding ever-greater sway in terms of investment performance. But what about the small-cap premium, the idea that small companies have produced outsized returns relative to larger peers? Lex looked at the evidence and concluded that, while the premium exists, it comes up short as an investment formula. Get the details here.
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Someone else has been bulking up in the hope of long-awaited market success. Private equity group CVC finally pushed the button on its twice-delayed initial public offering. Its listed rivals, such as KKR and Sweden’s EQT, have performed strongly. And CVC has been growing in size, buying infrastructure manager DIF. It is also nearing the end of a mammoth fundraising round. Still, Lex thinks the group would be wise to be conservative in pricing its market entry. Find out more here.
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This would fit with a general narrative that the US has had a great start to the year in terms of its IPO market, while the mixed performance of companies such as Douglas and Galderma that have listed in Europe means a more subdued mood. Perhaps. But Lex isn’t convinced by the hype around the pipeline of tech IPOs coming stateside. The tech companies heading towards a public listing, such as cyber security company Rubrik, tend to be pretty long in the tooth with complicated growth stories. Reddit’s IPO, hailed as a great success, took place at about half its last private valuation. That could deter bigger, better float candidates from coming to market. Read more here.
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The London market would be grateful for a pipeline of any sort at the moment — tech or otherwise. The drumbeat of negative news for London’s equity markets continues, with several deals and departures announced just this week. Those working to reinvigorate the UK’s equity markets, through rule changes and pensions reform, tell me that there are signs of life out there but it hasn’t yet translated into the type of eye-catching listing that changes the mood. One proposal in the meantime is a new private share trading system designed to ease companies’ transition to public markets, known as Pisces. Lex worries it could have the opposite effect.
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Still, if you want proof that the bleating about London has gone too far, take a look at Wood Group. Activist Sparta Capital Management this week called on the engineer to consider a US listing, suggesting the London market does not recognise the true value of its business. This is delusional. Wood is midway through yet another turnaround after the calamitous 2017 takeover of Amec Foster Wheeler. It is a troubled mid-cap, with a market value of £971mn and negative free cash flow. Its problems are of its own making. It’s too small to make an impact stateside and a New York listing wouldn’t address its woes. Read the Lex here.
Quick links
Catch up on the best-read Lex columns of the past week:
Have a great week,
Helen Thomas
Head of Lex
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