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2020 IPOs – what’s our take?

Our Share Research team look at some of the biggest UK IPOs from 2020, and what investors need to know.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

Concerns over Brexit put the brakes on UK IPOs, but 2020 saw activity start to liven up. Since the start of last year to the end of January 2021, 51 UK companies listed shares for the first time. A company’s initial public offering (IPO) is the first time the general public can invest in a company. But there’s usually a lot of noise for investors to cut through.

As with any investment, it’s important not to be swept away by hype. Always do your research. A company planning an IPO will release a prospectus, and this is a great place to start. It’ll give insight into how the company’s finances are doing, as well as management’s commentary. This can give you a real sense of a business’s priorities.

Investing at the start of a company’s stock market journey could offer great opportunity. You can find out about upcoming IPOs using our IPO Alert Service.

IPO alert service

We know researching IPOs can take some time, so on four higher-profile UK IPOs from the last year we’ve done some of the leg-work for you.

This article isn't personal advice. If you're not sure if an investment is right for you make sure you ask for advice. All investments can go up and down in value so you could get back less than you put in. Past performance is not a guide to the future.

Investing in individual companies isn’t right for everyone. You should make sure you understand the companies you’re investing in, their specific risks, and make sure any shares you own are held as part of a diversified portfolio.

Bytes Technology

Date listed: 17 December 2020 (London Stock Exchange Main Market)

Bytes Technology is one of the UK’s leading software resellers. It offers software, hardware and cloud computing services, to businesses and public sector organisations. Its independent London Stock Exchange (LSE) debut came after cutting the apron strings from South African tech company, Altron.

In a lot of ways this IPO was quite exciting for the LSE, which doesn’t boast too many large-scale tech groups in its midst. The group’s doing something right, with the amount of invoiced business rising from £343.4m in 2018, to £722.2m in 2020. And the amount actually collected from these invoices has risen from 6.3% to 48.3% in the same time frame. That’s a trend we’re particularly impressed by.

But before technophiles get too carried away, there are, as always, some things to be mindful of. The UK IT market is very competitive, with price being a major factor in who wins business. This is particularly true of the public sector, to which Bytes sits in. This means it’s likely we’ll see the gross margin fluctuate over time – of which there’s little the group can do.

We’re also mindful that the core senior management, including the CEO, have been with Bytes for a long time and played a crucial part in its growth. This has lots of benefits for now, but increases the risk of any transition period. Having been at the helm for so long and with the group on a high, we can’t rule out resignations in the medium term. The market is likely to be sensitive to this news.

Commercially, we admire Byte’s position as a market leader. And with no debt on the balance sheet, it’s in a financially sturdier position than lots of growing companies.


Doc Martens

Date listed: 3 February 2021 (London Stock Exchange Main Market)

The famous boot maker has come a long way from its punk heydays.

We suspect it’s that infamous brand that led to the market becoming so excited. The IPO was massively over-subscribed, and a market cap of £5bn is equivalent to almost 30 times underlying cash profits. We think that’s pretty lofty for what is essentially a shoe shop.

We can understand some of the optimism. A heritage brand is a great asset, and there’s a large international opportunity, including the US and China. Net debt (readily available assets minus debt) of £27.9m as a proportion of cash profits isn’t as bad as we’d feared either, given the group’s owned by a private equity firm. We also admire the strategy shift to focus on traditional designs, and to protect the brand by cutting ties with less high-brow resellers.

There is one thing that troubles us most of all though – Dr Martens are very fashionable at the moment. The very nature of fashion means that’s likely to change at some point. Unlike other fashion retailers, Dr Martens don’t have other core items or categories to fall back on when the cycle shifts.

We can’t knock the work that’s been done, or the opportunities ahead. But the current share price demands heady levels of growth, or the market could reassess its value of this iconic company.


The Hut Group (THG)

Date listed: 21 September 2020 (London Stock Exchange Main Market)

The Hut Group (THG) is an online retailer founded in Manchester in 2004, with most revenues coming from overseas. Its 100+ websites offer everything from gaming products, to nutrition and high-end fashion. It also offers an end-to-end platform for other businesses wanting to sell online. It covers everything from development and manufacturing of products, through to data analytics and delivery.

The huge surge in digital brands and marketing in recent years means it’s a good time to be a so-called “builder and enabler of digital global brands”. And the pandemic helped add 10.7m new active customers last year. On paper, we like THG’s position. But there are things to keep in mind.

We don’t have a full set of results from 2020 yet, making it difficult to value the shares in relation to profits (known as a price to earnings ratio, which is our preferred valuation method). Something to look out for is cashflow. There was a free cash outflow of £70.1m in 2019, as the group spent heavily on expansion. It’s not unusual for fast-growing companies to haemorrhage cash, but it’s not a method we’re supportive of, nor is it sustainable in the long term. After all, cash is king.

We think THG offers a slick product and should benefit from changing digital brand dynamics. Our main concerns until we have more information are cashflow, and exactly how the group intends to keep momentum going over the long term. Looking at the market cap, THG is valued at a huge 61.8 times cash profits, meaning there’s a lot of pressure for its ambitious plans to come good.



Date listed: 5 February 2021(London Stock Exchange Main Market)

Most of us have heard of Moonpig – it’s a UK based, online, personalised card and gift shop. The group’s made the most of the huge increase in demand triggered by coronavirus, which saw sales spike in 2020. And Moonpig bulls will focus on the fact digital retailers could continue to benefit from the accelerated shift to online.

While we’re inclined to agree, that shouldn’t be the only consideration. The group has a dominant market position already, with a 60% market share in the UK. That’s a real asset, and should translate to relatively reliable revenue, as all those customers come back for all their various card-occasions. And running a website comes with fewer costs, which helps support cash profit margins (EBITDA) of 26%.

The questions investors should be asking though, is where does meaningful growth come from here? Growing its presence in international markets seems like a sensible option – but this won’t come cheap. Things like marketing and logistics costs can stack up in the early stages of conquering new markets. It’s a mistake to think Moonpig is on a guaranteed course for rocket-fuelled revenue and profit growth in the immediate term. And with net debt equivalent to 3.4 times cash profits, we struggle to be overtly positive at this stage.


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This article is not personal advice or a recommendation to buy, sell or hold any investment. If investors are not sure of the suitability of an investment for their circumstances, they should seek advice. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv.

These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Past performance is not a guide to the future and investments rise and fall in value so investors could make a loss.

This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing.

Please see our full non-independent research disclosure for more information.

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