Top 4 upcoming IPOs to watch out for in London

We catch up with London’s IPO market and look at four stocks that are due to list before the end of the year - Round Hill Music, Mailbox REIT, Tirupati Graphite and Buffettology Smaller Companies.

  • There are signs that companies are feeling more confident about their initial publing offering (IPO) plans in light of the coronavirus pandemic, with more stocks listing in October than any other month this year
  • Businesses that have taken the plunge this year have delivered a mixed performance since listing
  • Four more IPOs are planned over the coming weeks - Round Hill Music, Mailbox REIT, Tirupati Graphite and Buffettology Smaller Companies, and more are expected to list before the year is up.

Signs of hope for new London listings

The uncertainty of the coronavirus pandemic brought London’s IPO market to a halt earlier this year. In fact, there were no standard listings at all during the four months to the end of June as companies delayed their plans until there was greater certainty, with just a couple of Venture Capital Trusts raising funds.

However, activity has picked -up in the last few months. There have been 20 IPOs this year and 9 of them happened in September and October. September brought us four listings, including The Hut Group’s IPO, which was by far the largest of 2020 so far. Five companies have gone public in October so far, including Guild Esports and Calnex. A number of companies intend to go public before the end of the year.

UK IPOs 2020: how have they performed?

It has been a very mixed year for the newest additions to the London Stock Exchange (LSE). Below is a list of all the companies that have listed in 2020 up to 21 October that you can trade with IG:

Market IPO date IPO price Share price (close of 21 October 2020) % change vs IPO
The Barkby Group AIM 7 January 2020 30p 18.50p -38%
Panther Metals UK Main Market 09 January 2020 6p 11.88p 97%
Calisen UK Main Market 12 February 2020 240p 162.90p -32%
Nippon Active Value Fund UK Main Market 21 February 2020 100p 96p -4%
Inspecs Group AIM 27 February 2020 195p 170.15p -13%
Mining Minerals & Metals (MMM) UK Main Market 06 March 2020 3p 3.87p 29%
FRP Advisory AIM 06 March 2020 80p 113.14p 41%
Abal Group (now Supply@Me) UK Main Market 23 March 2020 0.68p 0.51p -25%
Elixrr International AIM 09 July 2020 217p 253.49p 17%
Aex Gold AIM 31 July 2020 45p 47.5p 5.6%
Castillo Copper International Main Market 04 August 2020 1.7p 2.8p 65%
Kooth AIM 02 September 2020 200p 250.85p 25%
THG Holdings (The Hut Group) UK Main Market 21 September 2020 £5.00 £6.22 24%
Various Eateries AIM 25 September 2020 73p 66p -9.6%
Critical Metals UK Main Market 29 September 2020 5p 5.11p 2.2%
Guild Esports UK Main Market 02 October 2020 8p 6.8p -15%
Mode Global Holdings UK Main Market 05 October 2020 50p 50.41p 0.8%
Calnex AIM 05 October 2020 48p 51.12p 6.5%
Home REIT UK Main Market 12 October 2020 100p 100p 0%
Triple Point Energy UK Main Market 19 October 2020 100p 102.5p 2.50%

Top upcoming UK IPOs

The outlook for London’s IPO market remains buoyant. There are four companies that intend to launch an IPO in the near future, and it is likely more will follow before the year is up.

  • Round Hill Music
  • Mailbox REIT
  • Tirupati Graphite
  • Buffettology Smaller Companies

Round Hill Music: targeting stable returns through music rights

Round Hill was founded in 2010 and manages music copyright. In the last decade, it has established three funds that have collectively invested $650 million in buying 128,000 songs. The company aims to purchase songs and catalogues and tries to increase their value by generating income by using them in advertising, films, TV and through other methods. It has so far generated over $175 million of net royalty income and delivered an internal rate of return (IRR) of 17% for shareholders.

It intends to raise $375 million by issuing new shares in Round Hill Music at $1 each, and shares should be admitted to trading on 13 November.

The proceeds will cover the cost of a new suite of songs that will almost double its portfolio. It plans to buy 120,000 songs made by a suite of artists spanning The Rolling Stones and Elvis Presley to Kid Rock and Katy Perry. The songs are broadly spread over different genres including rock, country and pop. Round Hill says the portfolio of new songs has delivered an historic organic growth rate of 4%-5% per year and matched its 17% gross IRR.

Round Hill says it is a reliable business, one that is ‘uncorrelated to equity market movements and the effects of wider economic cycles including the effects of Covid-19.’ Essentially, it is selling itself as a defensive play that can be a steady and reliable source of income for investors in a time of uncertainty. It aims to generate total returns of 9%-11% per annum, including a dividend yield of 4.5%.

Mailbox REIT: invest in the Mailbox in Birmingham

Mailbox REIT is a real estate investment trust that has a single asset. It owns the Mailbox building in Birmingham city centre that used to be the former sorting office of Royal Mail. Today, it houses a mixture of tenants. It serves as the base for BBC Birmingham and homes a number of retailers.

Just under half of all total rent comes from office space, with car parking producing another 19%, leisure outlets 21%, retail 11% and the balance made up by other activities. Importantly, almost three-quarters of all revenue comes from just five tenants – the BBC, Q-Park, Advanced Business Software & Solutions, WSP Management Services and Harvey Nichols.

The 4.8- acre property, which has 698,000 square feet of space, was independently valued at £179 million on August 17, 2020, and it currently produces £9.3 million in annual rent. Notably, it can accommodate more tenants considering Mailbox REIT says it would yield £12.8 million in annual rent at full capacity.

The investment case for Mailbox REIT lies in the ‘low-risk, high-profile’ nature of its major clients, which it says ‘are considered to be very low risk from a credit perspective’. This is somewhat supported by the fact it managed to collect 82% of rents in the first quarter (Q1) of the year when the pandemic erupted, and 69% in the second, although it does highlight all of its tenants are reliable.

The company intends to stay a single-asset company. It is looking to raised up to £62.5 million priced at 100p per share. Shares should be admitted on 5 November, having been delayed for two weeks to give it more time to deal with the ‘significant interest from retail investors’.

Tirupati Graphite: a producing miner with big expansion plans

Tirupati Graphite is developing a a graphite and graphene business that is already in the early stage of production. The hope is to further de-risk and expand its multiple projects to build a fully integrgreated business.

The company’s Sahamamy project in Madagascar is already producing 3000 tonnes of graphite per year. It has another graphite project named Vatomina that is expected to come online shortly. Overall, Tirupati expects output to reach 9000 tonnes by the end of 2020 and it is ultimately targeting annual output of 81,000 tonnes by Q3 2024.

In addition, the company has developed downstream graphite processing operations in India that are already delivering 1200 tonnes of an expandable graphite-based flame-retardant additive each year. It expects this to expand to 4800 tonnes and compliment it with another downstream processing plant for graphite flake used in high-tech solutions, which it says will be producing 28,800 tonnes of high-grade graphite by 2024.

These activities means it has several sources of income based around commodities that are highly sought after by new technological applications, such as electric vehicles, and reliable applications like flame retardants and thermal management materials.

Most junior miners that tap London investors for cash are usually at a much earlier stage and still exploring for resources to exploit. Tirupati Graphite has a long way to go but it is already producing goods and has a clear path to significantly expand the business over the coming years.

Buffettology Smaller Companies: one for the long-term investors

Last on the list is Buffettology Smaller Companies, a new fund that aims to deploy the £100 million it intends to raise through an IPO (priced at 100p) in smaller companies that can deliver above-average returns over five to 10 years.

The fund will be managed by Sanford DeLand, which already manages £1.4 billion worth of assets from two open-ended funds - the CFP SDL UK Buffettology Fund and the Free Spirit Fund. The name comes from the fact Sanford Deland has an association with Mary Buffet and David Clark, authors of the seminal 'Buffettology' series of investment books regarding Warren Buffett's investment style.

The fund claims it can outperform other asset managers focused on smaller companies by deploying the methodology of ‘Business Perspective Investing’, which is underpinned by a theory that ‘there is no philosophical distinction between part ownership (i.e. buying shares in a company) and outright ownership (i.e. buying the business in its entirety)’.

‘The company will provide access to UK smaller companies, an asset class that has historically outperformed other major asset classes over the long term’. Smaller companies offer a particularly attractive investment universe for active managers as they tend to be less well researched by traditional broking houses and less well understood by the investment community,’ said the fund.

It intends to build a portfolio of 30 to 50 smaller companies with individual market caps ranging from £20 million to £500 million. The aim is to back the ‘large companies of tomorrow and participate in their long-term growth.’

The company is only for those seeking a long-term investment and, importantly, there will be plenty of opportunities to buy the stock considering it intends to issue up to another 350 million new shares within the first 12 months of listing.

How to trade upcoming IPOs

Once the company has listed, there are many ways you can attempt to profit from the IPO. As with all stock markets, you will be able to:

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