It’s always dangerous being late to the party. Especially when your eventual arrival has been well-signalled to the assembly.
TSB finds itself in just such a situation, as Lloyds prepares to float off 25% of the business in an IPO. Even this amount is already lower than the suggested 30-50% that was first indicated. If the European Commission wasn’t forcing the sale, it must be asked whether Lloyds would actually go ahead in current market conditions.
The problem for Lloyds and TSB is that markets are beginning to tire of the flood of IPOs. Like a meal consisting only of sweet things, eventually the appetite dims. As a result, even those companies with stronger businesses can see their IPOs left floundering, as happened with Saga. With new entrants to the stock market, the ideal is the Royal Mail flotation; public enthusiasm, willing institutional investors and a recognised business. The government may have been criticised for possibly selling off Royal Mail at too low a price, but at least it did succeed. Saga had the latter two elements behind it, and arguably some of the first, but it was still unable to muster a pop on the first day.
Can TSB be any different? Perhaps. Management seem to have learnt from the ‘long term investors’ problem with Royal Mail, as it seeks to tie in retail shareholders with extra shares if its IPO allocations are held for a year, while no dividend is expected until 2017. However, the prospect of strong dividends didn’t stop many from selling their Royal Mail shares, even if they missed out on the second leg of the price surge.
In addition, TSB has more branches than needed, having acquired 164 from Cheltenham & Gloucester which did not offer current accounts. Thus it will take some years to grow the business to a level to match its 631 branches.
The IPO market is not dead, and investors still want to buy into decent companies. Ironically, it is only now that the really good companies are coming to market. Saga and TSB are both noted brands far more than Pets at Home, AO.com and Just Eat. Perhaps Saga’s flotation will send a cautionary message to those that a currently pricing up TSB for sale. The lesson is to keep institutional investors on side and avoid overhyping the sale.
TSB wants to be viewed as a solid, unexciting bank that will deliver on its long-term aims. Perhaps investors should view its IPO in the same way.