Easing stock market listing rules are encouraging more companies to list in the UK, according to Dan Coatsworth, investment analyst at AJ Bell, who said investors should have access to “a host of new names” in 2025.
Concerns have been raised over the shrinking size of the UK market, with companies de-listing or choosing to hold their initial public offering (IPO) in the US.
Part of this has been valuations. The UK is unloved and therefore the listing environment is difficult. Meanwhile, in the US, companies can launch with relative ease and at a premium price to what they would have achieved domestically.
But new rules from the Financial Conduct Authority (FCA) to simplify the process of joining the UK market should “generate more interest in the UK stock market and put more companies on the radar of investors”, said Coatsworth.
The new rules abolished the need for shareholders to vote on significant or related-party transactions. They also introduced more flexibility around enhanced voting rights.
Due to the rule changes, investors should expect more IPOs in 2025, with some new names entering the FTSE 100 or FTSE 250 indices.
“This would provide a much-needed boost to the UK stock market, which has been losing countless companies to takeovers in recent years and has not replenished the pot with enough flotations,” Coatsworth said.
It is not just the new listing rules that will encourage companies to list in the UK, he noted. Some will have been waiting for political stability before proceeding with a flotation.
“With the general election now done and dusted, a big uncertainty has been removed in the eyes of company bosses and this should lead to more stock market flotations,” he said.
“Advisers and lawyers imply there is pent-up appetite for IPOs but that preparations to list a company can take months, hence why a surge in stock market listings is more a story for 2025 than this year.”
One that could come in 2024 however is the listing of pay TV service-to-film production group Canal+, which is expected to float on the London Stock Exchange towards the end of the year as part of its demerger from Vivendi. It would be large enough to take a position in the FTSE 100 and is expected to be worth around £6.7bn at listing.
“Canal+ could be a big hit with investors if the valuation is attractive and it communicates a compelling strategy on how it intends to grow on a standalone basis, freed from the shackles of being owned by a media conglomerate,” said Coatsworth.
“The expected IPO in December is timed to happen just after the release of the latest Paddington film, a hugely successful franchise produced by Canal+’s StudioCanal arm. If Paddington in Peru cleans up at the box office, there might be a queue of investors eager to put a slice of the producer in their ISA or pension.”
In other cases, companies already listed in the UK could now be eligible for inclusion in the FTSE indices. Historically, London-listed companies needed a premium category listing to qualify for FTSE indices, but this has been changed to an Equity Shares Commercial Companies (ESCC), which is a new category introduced in July.
“All companies that previously had a premium listing were automatically switched to ESCC. Standard listing companies were transferred to a new ‘Transition’ category and they have to apply to switch to ESCC,” said Coatsworth.
“To qualify for the ESCC category, companies must be worth at least £30m; they must comply with the UK Corporate Governance Code or explain why they don’t comply in their annual report; and they must offer pre-emption rights to shareholders, among other factors.”
Four companies that previously didn’t qualify for FTSE indices have already laid the groundwork to change their listing category – these are Coca-Cola Europacific Partners, Deliveroo, Oxford Nanopore Technologies and THG.
“Deliveroo has already completed the move to the ESCC category, Oxford Nanopore is targeting transfer on 6 November, Coca-Cola Europacific Partners should make the switch on 15 November, and THG hopes to transfer by March 2025,” the AJ Bell Analyst said.
Deliveroo will be eligible for inclusion into FTSE indices at the November reshuffle while the other three could apply for the March 2025 review.
The Coca-Cola bottling company is big enough to join the FTSE 100 while Deliveroo, Oxford Nanopore and THG would slot into the FTSE 250 at their current market capitalisation.
“In doing so, they should join the top tiers of the UK market and this could be the trigger for more ‘ineligible’ companies to follow suit and find a way into the FTSE,” the AJ Bell analyst said.
This should benefit these companies as passive funds tracking these indices will buy the shares. Liquidity could also improve as these businesses “become more visible to investors”.