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Should you invest in Wise, Monzo or Starling IPOs?

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Written by: Emma Lunn
18/05/2021
The financial firms all feature on a list of UK initial public offerings (IPOs) that investors should watch out for.

EG Group ranked top of the list as the upcoming IPO with the greatest potential, followed by Wise claiming second place, and Darktrace coming in at third place. Other companies on the list include Jaguar Land Rover, and BrewDog.

An initial public offering is one of the methods that companies can use to go public and make stock available to retail traders and investors. The company will decide how many shares it wants to offer, and an investment bank will suggest an initial price for the shares based on the predicted demand for them.

Trading company IG says investors should watch out for the following UK IPOs.

Rank IPO Estimated Market Cap
1 EG Group £10bn
2 Wise £4.1 – £5.1bn
3 Oxford Nanopore Technologies £2.3bn
4 Jaguar Land Rover £2bn
5 BrewDog £1.5bn
6 Monzo £1.2bn
7 Starling £1.1bn
8 McLaren Group £560m

 

But while an IPOs outlook can look promising, Deliveroo’s recent debut to the stock market can showcase how volatile the stock market can be after. The food delivery company’s share price fell significantly when trading began in April and has still not recovered back to its opening price.

Joshua Mahony, senior market analyst at IG, said: “Deliveroo’s arrival on the stock market has done far more to highlight the innate risks of investing fresh listings than delivering value to their 70,000 new shareholders. Sharp moves on IPO day are typically attributed to a bank either overvaluing or undervaluing a stock, and this is no exception.

“No doubt, the company has the ability to grow into their valuation over time, but the expectation that we will see poor momentum for pumped up growth stocks doesn’t exactly fill investors with complete confidence. Deliveroo firmly falls into the pandemic winners category, but at a time when traders are looking for value recovery plays, this doesn’t look like the most attractive proposition.”

Upcoming international IPOs to watch

Upcoming IPOs in the US include Stripe (estimated market cap $95bn), TikTok Global ($50bn), WeWork ($9bn) and Nextdoor ($5bn).

IG has also identified four upcoming international IPO’s to keep an eye on. ByteDance, a Chinese start-up that launched the TikTok app in 2017 takes the top spot with an estimated market cap of $250bn. Ant Group, the Chinese online payment company, follows in second place with an estimated market cap of $200bn,while Universal Music takes third place with an estimated market cap of $36.4bn.

The risks of investing in IPOs

As the Deliveroo saga shows, investing in IPOs isn’t risk-free. Documents such as admissions and prospectuses are there to provide more detail on the company, so it’s important to read through what’s available to you before making a decision. If you don’t, you could later discover bad news, such as unethical practices etc. which could impact a company’s share price.

Companies will often have little to no track record of trading meaning there’s not much to base an investment on. It’s best to check whether there’s a history of luring in investors with the promise of large dividends which have then subsequently failed to deliver suitable cash returns to the shareholders.

As there’s no real way of knowing what the price of an IPO will be before the company is floated, it is generally set at a range. This means that its shares are vulnerable to starting at the lower end of the range, fuelling disappointment from investors. Those who expected it to do better many sell shortly after the IPO is traded, further pushing the share price down.

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