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Greggs on a roll as pandemic uncertainties bite

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The UK trade department’s comments about selling the EU “innovative jams” in the post-Brexit era might have been widely mocked, but looking at Gregg’s share price chart over the past five years, they don’t seem quite so mad. The bakery chain’s market value tripled from 2015 as it rode a wave of successful new products, encapsulated in the launch of its vegan sausage roll at the beginning of 2019.

Yet despite its best efforts Greggs, like every other food takeaway, suffered as the pandemic shut offices and shops in 2020. It’s trading update Wednesday, however, offered some hope to investors of a revival in the new year. December’s like-for-like sales were 85 per cent of the previous year’s number and an online partnership with Just Eat meant digital sales doubled in the fourth quarter. Shares reacted well, rising around 10 per cent.

It wasn’t all good news though. Boasting that the company achieved 85 per cent of last year’s sales is, of course, just another way of saying revenues fell 15 per cent, and Greggs only managed to open a net 28 new shops in 2020. Online, which is still a new game for the company, accounted for a diminutive 5.6 per cent of sales.

How you think about Greggs’ future really depends on whether you believe 2022 will be remotely like 2019. On the plus side, its £37m of net cash and fresh £100m revolving credit facility offer space for further expansion. With commercial landlords across the country seemingly desperate for dependable tenants, there will be plenty of opportunity to cut costs on the 100 net new stores it plans to open this year.

The half-filled meat pasty view is that, if working from home trends become habits, Greggs will be forced to rethink its high street and transport hub locations. Given chief medical officer Chris Witty raised the spectre of further winter lockdowns at Tuesday’s Downing Street press conference, it’s pretty easy to make the case that pre-Covid working arrangements will be slow to return, if at all.

There’s no doubt that Greggs’ business should be fine, but even if it does grab market share during the pandemic, how big will that market be once we’re allowed to venture out into the world again? With its shares priced at 21 times 2022’s forecast earnings, the innovative baker still feels expensive when the answer to that question is still out of focus.

LSE: trading places

London’s inferiority complex is showing again, writes Bryce Elder.

The London Stock Exchange wants us to believe that looser listing rules will attract exciting new tech businesses. Its requests to a government review of the rules include support for dual-class share structures and a scrapping of the requirement to float at least 25 per cent of a company’s equity.

Attempts to compete with New York and Hong Kong for IPOs are being hindered by this lack of flexibility, LSE argues. It proposes watered down rules for the Premium Segment, the top level of a market structure that has more segments than a chocolate orange.

Therein lies the problem. Any company wishing to bypass ownership limits and one-share-one-vote principles can already float in London by seeking a Standard listing, which was the path taken by mail-order retailer The Hut Group. This option carries the penalty of exclusion from FTSE indices — though THG’s 60 per cent gain since flotation in August raises valid questions about how much that matters. Last year’s collapse of hospital owner NMC Health had already demonstrated that a premium listing is no guarantee of quality.

Even weaker rules are available on Aim, with its there-be-dragons approach to regulation, and via LSE’s High Growth segment, which was introduced in 2013 in the perennial hope of making London more attractive to tech but which has attracted only two IPOs. Recent experiments have been no more successful, with a Shanghai-London Stock Connect co-operation scheme introduced last year being taken up by just four companies.

LSE now wants to make the most successful segment of its marketplace look more like the failed bits, which is an odd way to run what remains the world’s sixth biggest stock exchange by IPO proceeds.

The unsolvable problem faced by LSE is that London’s listed tech sector has all-but disappeared. An investment ecosystem that supported companies such as Arm Holdings, Misys and Autonomy no longer exists. What’s left is a global venture capital network that holds back floats until the moment is right to exit on the most valuable venue. London, with its relative preference of dividends over growth and its overweighting towards financials and minerals, is unlikely to ever be their first choice.

Instead, any weakening of the gold-standard Premium listing rules in pursuit of IPOs bound for China and New York risks upsetting a more important ecosystem — the unique concentration within the Square Mile of people who can read a bank balance sheet, an actuary table and a geologist’s report. Rather than looking enviously at the markets above, LSE needs to defend its lead over those below. It’s not Nasdaq, but it should also try to avoid becoming Frankfurt.

Greggs: jamie.powell@ft.com
LSE: bryce.elder@ft.com



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Spain’s Acciona eyes €9.8bn valuation for renewable energy IPO

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Spanish conglomerate Acciona is hoping to achieve a valuation of up to €9.8bn for its renewable energy arm, arguing it “might as well” get a flotation of the unit “over and done with” despite a sell-off in green stocks since the start of the year.

Acciona Energía had previously been expected to be among a rush of flotations in the renewables sector in Europe over the next 18 months, but the decline in climate-related stocks since January led to its Spanish rival Opdenergy cancelling its planned listing in May. 

On Thursday, Acciona priced an initial public offering of a 15-25 per cent stake in Acciona Energía at a range that implies a valuation of between €8.8bn and €9.8bn for the renewable energy entity. The group is seeking to raise funds to nearly double its renewable energy capacity in just over four years.

In an interview with the Financial Times, Acciona’s chair and chief executive José Manuel Entrecanales acknowledged the recent market volatility. Stocks such as Orsted, the world’s biggest developer of offshore wind farms, rose to an all-time high in January but investors have since pulled back amid concerns over a “green bubble”.

But Entrecanales maintained the downturn in valuations was no reason to hold off from the IPO, arguing that the listing was necessary to tap financing and improve the ESG ratings of Acciona’s activities in the renewables sector by making them a standalone business.

“There’s no absolute need to do it now, but . . . you can’t wait to find the absolute top of the market, the peak moment: this is a 20-year project,” he said. “The most important reason [for the listing] is funding and rating.”

He added that the IPO was “quite disruptive for the company”, leading Acciona’s management to “defocus very much from our main objective, which is growing the business, so we might as well get it over and done with”.

Entrecanales’s family controls around 55 per cent of the Acciona conglomerate, whose activities range from real estate to water treatment.

Entrecanales, who took over Acciona from his father in 2004, also argued that renewables valuations had improved in recent weeks. “Some of the reduction in prices that occurred . . . it’s kind of moderating lately,” he said. He dismissed other recent planned green IPOs as “an attempt to tap the market . . . [with] kind of start-up-like projects”, while not directly naming any other competitors.

By contrast, he depicted Acciona Energia as “a very seasoned . . . very conventional cash flow-generating company with a great deal of potential growth.”

The renewables group has 11GW of installed capacity but aims to reach 20GW by the end of 2025 and 30GW by 2030 through expanding in onshore wind and solar in particular. Spain remains its main market, although it also views countries such as the US, Chile and Australia as important growth areas.

Entrecanales maintained that, despite the recent downward shift in the sector’s valuation, longer-term factors that led to its surge last year still applied. These included European governments’ plans to spend much more on the energy transition, President Joe Biden’s election in the US and growing public concern about climate change.

Spanish oil major Repsol has also been looking at a possible listing of its low-carbon business while Italian rival Eni said in April that it plans to list or sell a stake in its renewable power business in 2022.

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Wise to go public in direct London listing

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Wise, the fintech company previously known as TransferWise, has announced its intention to go public in London through a landmark direct listing.

Kristo Kaarmann, co-founder and chief executive, said a direct listing “allows us a cheaper and more transparent way to broaden Wise’s ownership” than a traditional stock market launch.

It does not involve raising any new capital or bringing in new investors, but means shares held by Wise’s existing shareholders will become tradable on the London Stock Exchange.

The company’s decision to list in London rather than New York will be seen as a boost for the UK government, which has been trying to make the country more attractive for fast-growing tech businesses.

Its efforts suffered a setback this year when the high-profile initial public offering of Deliveroo was described as the “worst IPO in London’s history” after the stock fell 26 per cent on its opening day.

Like Deliveroo, Wise said it would use a dual-class share structure. However, while Deliveroo’s set-up gave co-founder Will Shu 57 per cent of voting rights, Wise said it would offer enhanced voting rights to all existing shareholders, including earlier institutional backers such as Baillie Gifford and Fidelity.

Kaarmann said the dual-class structure, which expires after five years, would allow the company to “keep focusing on the mission we’ve always been working on, focusing on customers the way we have and transition smoothly into broader public ownership.”

Matt Briers, Wise’s chief financial officer, added that “we are incredibly mindful of the views of shareholders” and “if it’s not for everybody we understand”, but stressed that such structures were common among successful tech companies in other countries.

Wise, which was valued at $5bn in a secondary share sale last year, did not provide any guidance on pricing, which will be determined through an extended opening auction when it joins the market in a few weeks.

“Part of the reason to do a direct listing is to avoid this speculation and let the market set the price on the first day,” Briers said.

TransferWise opened in 2011 offering cheap cross-border consumer money transfers. Kaarmann and co-founder Taavet Hinrikus developed the business as a way to reduce the amount of money they were spending sending money between London and their native Estonia. They are now the Baltic country’s two wealthiest men, according to local business newspaper Aripaev.

The company renamed itself Wise in February in an effort to highlight a shift towards a broader product offering. Wise has been seeking to attract more profitable business customers and introducing more complex banking services such as multicurrency current accounts.

Wise’s core money transfer business targets wealthier customers than other specialists such as Western Union, and the company says its main rivals are mainstream banks.

It reported revenues of £421m in the 12 months to March, up from £303m the previous year. Pre-tax profit doubled to £41m.

Direct listings have become increasingly popular among technology companies in the US. Spotify started the trend when it joined the New York Stock Exchange in 2018, and has since been followed by groups such as Slack, Coinbase and Roblox.

Wise would be the first technology company to complete a direct listing in the UK. Although the LSE has long allowed companies to be “introduced” without raising capital, introductions have usually been reserved for demergers or secondary listings. Wise would be the largest company to be introduced without already being listed elsewhere or separated from another group in more than two decades.

Stephen Kelly, chair of government-backed entrepreneur network Tech Nation, said: “I hope Wise has opened an alternative avenue to the public markets for other UK technology businesses.”

Briers said the company considered alternative locations such as New York and Amsterdam, but was attracted to London because it had existing infrastructure to facilitate a direct listing and offered access to a global investor base.

He said recent government initiatives to encourage tech listings “helps with our conviction, but we’ve had this plan for quite some time”.



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Made.com’s first-day flop is another case of pandemic IPO opportunism

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It will be no surprise to its customers that Made.com’s prospectus arrived late and left a lot to unpack.

Shares in the self-assembly furniture retailer had been trading for more than five hours by the time the public were given a chance to examine the business in detail. An 8 per cent drop from the issue price, which at 200p apiece was at the very bottom of the indicative range, had already suggested some institutional jitters about what they had bought.

And no wonder. Made.com somehow contrived to lose £1.8m in the first three months of 2021.

The prospectus blurb leans heavily on how its model of taking orders before paying suppliers delivers superior cash flow. Yet even the pandemic-fuelled home improvement boom has not been enough to prove a business that in its 11th year of operation has yet to turn an annual profit.

Made.com’s handlers blamed the flop on IPO fatigue. It’s a weak excuse. Dealogic data show that the year to date has been quieter than average for London market floats and, while Deliveroo and Alphawave were both well publicised disasters, plenty of new issues including Moonpig, Trustpilot and Darktrace have headed northwards.

Made.com’s bigger problem is that it is an old-economy play from a sector whose fortunes remain tied to housing transaction volumes and supply chain management.

Furniture is notoriously difficult to sell profitably. Only Ikea has built a global presence in a fragmented market that remains hemmed in by national borders. Swapping a store fleet for a website does not fix inherent fragility of scale and seasonality that pushed companies including MFI, Habitat and ScS Upholstery into administration in 2008 when their suppliers pulled credit insurance.

Success stories since have mostly been marketplaces such as Wayfair, the $33bn-valued sector gorilla. It plugs 22m products from more than 16,000 suppliers into a distribution network that is built to handle the kind of bulky and unwieldy parcels that are a hindrance to its rivals’ delivery times.

Breadth and speed matter because pricing power is weak and customer switching costs are nil. Marketplaces live in fear of Amazon, whose pages are already filled with no-brand Chinese knock-offs, so they try for scale by throwing money at marketing. Wayfair has spent an average of 11 per cent of sales on advertising over the past five years, outspending its bricks-and-mortar rivals approximately fourfold.

The idea behind Made.com and its closest European peer, Frankfurt-listed Westwing, is to offer something more differentiated: a private-label collection in a magazine format that takes cues from Terence Conran. It is a niche helped out over the past year by a drop in marketing expenses as leisure industry closures diverted disposable income to homewares.

Benefits now look to be unwinding — Made.com’s administrative expenses before flotation costs rose 14 per cent year on year in the first quarter — and the formula is unproved in normal times. Westwing warned repeatedly throughout 2019 that ad spending was not boosting sales and entered the pandemic trading below cash value, having slumped more than 90 per cent from its float price in 2018.

Then there is what Made.com calls its “innovative, data led just-in-time supply chain”. It is also unproved. Recent freight line disruption meant lead times were up to eight weeks behind target levels, which pushed the recognition of about £8m of operating earnings from 2020 to 2021. Customers were already being asked to wait up to 16 weeks for delivery and can cancel free of charge at any time. Their requirement for patience has become a meme.

Brent Hoberman, Made.com’s co founder and highest-profile backer, marked the top of the dotcom bubble perfectly in 2000 with the IPO of Lastminute.com. With Made.com his exit was much earlier, coming as part of a refinancing in 2015 that culled most of the board. Taking the company public cuts Hoberman’s remaining stake from 7 per cent to less than 5.5 per cent.

That fellow backers chose this moment to sell down leaves the unavoidable feeling that the market is being delivered less than it bargained for.





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