Proactive Investors - London’s stock market faces the prospect of losing a number of high profile names but will the trickle of departures become a flood?
On top of reportedly losing the arm wrestle for the ARM Holdings (LON:ARM) IPO later this year, today saw building materials firm CRH (LON:CRH) announce plans to move its primary listing to the US while Flutter Entertainment and Shell PLC could follow suit.
“So much for making London the go-to place for companies to list their shares. London Stock Exchange is having to work overtime just to keep those already listed, let alone attract new ones,” commented Russ Mould at AJ Bell.
So why the moves. Some of it is down to plain common sense. Let’s take CRH. It does 75% of its business in the US and US is expected to be a key driver of future growth.
It said the move would deliver higher profit, returns and cash for shareholders. The logic is strong and the market agreed, sending shares up 11%.
Still this doesn’t make it any easier for the LSE. Indeed, losing the world’s largest building materials company to New York “is a bitter blow” for London, according to Neil Wilson at markets.com.
For Flutter too, the argument is compelling. Its US business, FanDuel, is set to become the group's largest business by revenue while it has also been the subject of bid rumours from MGM.
Valuation is another argument in favour of moving. As Mould states: “There is also the fact that it could get a higher valuation by trading on the US stock market which could come in handy if it wants to issue shares for acquisition deals. Plumbing group Ferguson did exactly the same thing.”
Ferguson moved its primary listing to the US last year while mining giant BHP was another to depart the UK’s flagship index in January 2022, moving its main listing to Australia.
The impact of Brexit and the reputational damage done by the Liz Truss regime can’t be ignored either. Companies seek stability in financial markets and the uncertainty surrounding the UK in recent years has damaged its credibility as a market in which to invest and list.
Mould commented, “Overseas investors lost interest in the trading venue as soon as the UK voted in favour of Brexit, and valuations have got even cheaper. That’s hardly a good sales pitch to attract more big companies to the UK market.”
Both Mould and Wilson were critical of City regulators and felt change was needed.
Mould felt “efforts to relax the listing rules to attract more companies to London come across as a bit desperate. It should be a badge of honour to list in the UK, but that reputation is dwindling fast. “
He pointed out: “There are plenty other companies in the FTSE 100 which do business in the US that could easily follow Ferguson and CRH. That’s not a good look for the London Stock Exchange.”
Wilson said the moves were “a sign of decline and underlines the need to revitalise public markets in the UK.”
“It’s not just companies moving listings abroad like Ferguson, it’s the huge slate of takeovers that has decimated corners of our markets due in large part to the weak pound and depressed UK valuations.”
“Time for major change,” he stated.
Time will tell but reputations are easy to lose and hard to restore. Perhaps the damage has already been done.