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Cenkos’s Durkin bows out for good amid changing landscape

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Jim Durkin will next month leave the City for the second time. After trying to retire three years ago, he made a surprise comeback as chief executive at Cenkos Securities during a period of turmoil for the London broker. But this time, he said, his departure would be final.

The Croxteth-born Liverpudlian has spent 40 years in the City’s clubby small-cap broking industry. He has seen it evolve from bowler hats and paper-based trading when he began as a trainee analyst at stockbroker Simon & Coates to a sector now grappling with an uncertain future. Tighter regulations and the growing financial clout of large US investment banking rivals are reshaping its competitive landscape.

“I came back to calm things down,” Durkin said in an interview. “I am now 61 and have been at it since I was 21. We are still waiting for regulatory approval [for my replacement] and then I’ll head off into the sunset.”

Durkin is confident that Cenkos is now in a position to prosper. Despite London’s stock market underperforming its booming US counterparts and a lack of big tech stocks, brokers have profited from equity raising activity as companies shored up their balance sheets during the pandemic. There has also been a resurgence in initial public offering activity. 

Durkin expects the UK to follow the US with more special purpose acquisition company transactions as investors seek to build “war chests” to buy companies with balance sheets weakened by the pandemic. 

Rules governing the stock market should be eased to allow more of these sorts of deals, he added, pointing to a government review of listings that is due to report in coming weeks.

Durkin still owns a 9 per cent stake in Cenkos. He was a founding shareholder and then chief executive of the brokerage between 2011 and 2017.

During this period, and in his years before at rival Collins Stewart, he proved a stalwart adviser to small companies, helping raise more than £21bn in equity at Cenkos.

There were bumps along the way. In 2016, Cenkos was fined £530,500 by the UK’s financial watchdog over failings relating to its work for Quindell, the scandal-hit white-label company.


9%


Founding shareholder Jim Durkin’s current stake in Cenkos Securities

Durkin describes the broking industry as “putting ideas with capital”, saying that the equity markets have been proven to be the best place for small businesses to find finance.

But many in his network have now retired, according to one investor who has worked with Durkin at Collins Stewart and Cenkos.

“He is a good institutional salesman but a lot of his clients have now retired and running a business involves an entirely different skill set,” the person added.

Durkin agrees that the City has “changed dramatically” in the decade since the 2008 financial crisis. Not all has been for the good — he is concerned about how the introduction of Mifid II regulations in 2018 has hit independent research.

These rules have also damaged the broking industry, forcing firms to charge separately for investment research, rather than bundled with trading, which throttled a lucrative revenue stream.

Against this challenging backdrop, Cenkos and its British broker peers have also been fighting against bigger US investment banks for positions on IPO advisory lists.

Durkin is critical of the role sometimes played by these larger rivals. “When I see large deals being done by seven banks, I ask who is taking responsibility? Who is caring about the price at which the deal is done? [But] you don’t get sacked for appointing Goldman Sachs.”

Durkin regrets not being able to win mandates for Cenkos on more of the bigger ticket IPOs, although it enjoyed a purple patch of larger flotations during the past decade. 

Cenkos worked with Bob Mackenzie, executive chairman of AA, on the flotation of the group in 2014. The IPO has since been under scrutiny for leaving the company saddled with almost £3bn of debt, leading to the buyout by private equity this year.

Durkin does not regret the work on the AA float, saying that at the time it was a good prospect. “It was carrying a level of gearing but also a very reliable source of free cash flow.”

The AA was also one of a number of IPOs where Cenkos worked with Neil Woodford, who left Invesco in the same year to set up his own investment firm that invested in the breakdown recovery group’s flotation. Woodford Investment Management imploded in 2019 while still holding assets worth £3.7bn on behalf of more than 300,000 investors.

Woodford was seen as close to Cenkos given his longstanding relationship with Paul Hodges, a founder shareholder of the broker and head of its equity capital markets team. Cenkos brought to market several Woodford-backed groups, including biotech firms Verseon and Abzena. 

Woodford also invested in Eddie Stobart Logistics, the transport group that Cenkos helped float before Durkin took his first leave as chief executive. Eddie Stobart is now, too, in the hands of private equity after an equally debt-laden stint on the public market.

Durkin said that Woodford, who is now planning a comeback, was “an important client but never a massive part of the business”, and only ever accounted for a “low single-digit” amount of the money Cenkos raised every year during that period.

He added: “Neil was supportive of some of our deals but no more than any other broker. He had a lot of money and did a lot of deals.”

Durkin started in the City in 1981, and has since “seen several crashes, several asset bubbles”. Global equity markets are booming right now. There are still bargains among listed companies in the UK, he added, but investors need to be selective. 

His return to Cenkos in 2018 followed a boardroom shake-up and a sharp fall in profits. Latest figures for the six months to June 30 show that Cenkos recorded a profit of £750,000, up from a loss of £200,000 in the same period the previous year. It had £22.4m in cash, up from £14.7m.

Cenkos, said Durkin, was looking cheap, trading at a market capitalisation of just £34m. While he predicts further M&A among rival brokers, he said that Cenkos could stand on its own. “We are very undervalued at the moment. The market is not assigning any real value to us — I think that’s wrong.”



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South Korean video game group behind hit ‘PUBG’ aims for $5bn IPO

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The company behind global hit game PlayerUnknown’s Battlegrounds plans to raise up to Won5.6tn ($5bn) in an initial public offering that is expected to be South Korea’s largest ever.

Krafton said in a regulatory filing on Wednesday that it will sell more than 10m shares at Won458,000-Won557,000 each, with the top end of that range giving it a market capitalisation of Won28tn. The IPO price will be set on July 9 ahead of the company’s listing in Seoul on July 22.

The much-anticipated listing is likely to top that of Coupang, the leading South Korean ecommerce company that raised $4.6bn in New York in March.

Krafton, formerly known as Bluehole, was founded by Chang Byung-gyu in 2007. PUBG, a so-called battle royale game in which players fight to the death on a remote island, was released in 2017 and accounts for the bulk of Krafton’s revenues. The game has sold more than 75m copies across PC and consoles, while its mobile version has been downloaded more than 1bn times. Krafton’s operating profit more than doubled to Won774bn last year as sales jumped more than 50 per cent to Won1.67tn.

However, the company cited uncertainty in overseas expansion and domestic regulation as investment risks.

“Despite our successful experience in entering overseas markets, our past experience does not guarantee our future success given the different language, culture, custom and legal, regulatory environment,” Krafton said in its filing.

South Korea is on track for a record year for IPOs on huge retail investor interest. The benchmark Kospi index is trading near all-time highs, buoyed by ultra-low interest rates and the country’s strong economic recovery from Covid-19. Investment bankers have predicted that proceeds from IPOs will more than quintuple to at least Won25tn in 2021.

Other IPOs in the pipeline include LG Energy Solution, the world’s largest electric vehicle battery maker, which is expected to raise Won10tn-Won15tn in September. Hyundai Heavy Industries, a shipbuilder, is likely to raise $1bn-$1.5bn in August. Smaller deals include the IPOs of Kakao Pay and Kakao Bank, units of the country’s dominant messenger service provider.

“The Krafton IPO will be popular among investors, given investors’ growing interest in new growth areas such as EV batteries, games and online businesses,” said an investment banker close to the deal. “But the company is heavily reliant on just one game and it is uncertain how long the game’s popularity will last.”

Some analysts have raised concerns about Krafton’s high valuation based on its IPO pricing.

“Krafton’s valuation seems stretched, considering that its market cap will surpass NCSoft’s, although NCSoft is making more money than Krafton,” said a local analyst referring to one of the company’s competitors.

Krafton plans to use the IPO proceeds to develop new games, acquire other developers, enter markets including India and the Middle East and invest in technologies such as artificial intelligence.

After the IPO, Chang will hold a 14 per cent stake, followed by Chinese internet group Tencent with 13.2 per cent, according to company filings.

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Made.com valued at £775m in London IPO

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Shares in Made.com fell 8 per cent despite the company pricing them at the bottom of their range in its initial public offering on Wednesday, giving the online furniture retailer a market capitalisation of £775m.

The listing follows the recent debuts in London of online greeting card group Moonpig and vintners Virgin Wines, which have accelerated sales thanks to stay-at-home consumers buying online during the coronavirus pandemic. Both those groups’ shares remain well ahead of their IPO prices.

Deliveroo’s £7.5bn IPO was branded one of the worst In London’s history, however, after its shares — already priced at the bottom end of the range — fell as much as 30 per cent in initial dealings. They remain more than a third below their IPO price.

“It’s a bit disappointing,” said one banker not involved in the Made.com IPO, adding that the 200p a share pricing was “some way below the levels that had been talked about”.

Valuations of up to £1bn had been mooted in the run-up to the listing.

“It’s got a large addressable market and a lot of share to go for, but historically it has wrestled with achieving profitability and scale in the UK market and it has gone ahead and pushed into international markets despite that,” the banker added.

Made.com sold 50m new shares in the IPO, raising £100m, while existing investors including co-founder Ning Li and Brent Hoberman sold 46.9m shares. A further 14.5m shares could be made available as part of the overallotment option. If exercised, that would increase the number of shares to 111.5m and 29 per cent of the issued share capital.

The shares traded conditionally in London on Wednesday, while full dealings will begin on Monday.

The homewares group aims to quadruple annual sales to £1.2bn by the end of 2025. The company has said it plans to invest proceeds from the IPO in marketing and supply chain improvements aimed at reducing the time between customer orders being placed and goods being delivered.

“The IPO is an exciting milestone for Made,” said chief executive Philippe Chainieux. “A listing in London, where the business was founded, will enable us to accelerate our growth.”

Made.com generated £315m in sales last year. The group, founded by entrepreneurs Ning and Hoberman in 2010, sells to about 1.2m active customers in the UK, Germany, Switzerland, Austria, France, Belgium, Spain and the Netherlands and plans to expand beyond Europe.

After admission, growth-focused investors Level Equity and Partech will be the largest investors in the group, holding 14 and 11 per cent respectively, followed by companies linked to Ning with 8.8 per cent.

Fund management groups Majedie, Axa and NFU Mutual will also be top-10 shareholders, while a vehicle controlled by Hoberman will own 5.5 per cent.

The float is the latest in an increasingly active IPO scene for so-called digitally native businesses.

Victoria Plumbing is due to float on London’s junior market early next week, with pricing details expected on Thursday, while shares in German online fashion retailer About You began trading in Frankfurt on Wednesday and Berlin-based online optician Mister Spex announced its intention to float on Monday.



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Hong Kong tycoon Richard Li’s FWD to raise up to $3bn in US IPO

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FWD, the Asian insurer founded by the son of Hong Kong tycoon Li Ka-shing, has filed for a US initial public offering in what would be one of the year’s biggest listings.

The company launched by Richard Li in 2013 said on Thursday the number of American depositary shares to be offered and the price range for the IPO had not yet been determined and the timing of the listing was subject to regulatory approval. But the company could seek $2-3bn from the share sale, according to people familiar with the situation.

FWD has expanded aggressively across Asia, rapidly rolling out a network across 10 countries including Japan, the Philippines, Vietnam, Singapore, Malaysia, Thailand and Cambodia.

The insurer has almost 10m customers, more than $63bn in assets and about 6,100 employees as well as 33,000 agents.

Richard Harris, a fund manager at Hong Kong-based Port Shelter Investment Management, said FWD “has made enormous gains [in market share] because it’s got a lot of firepower behind it”.

As with Li Ka-shing’s Cheung Kong conglomerate, FWD “takes a strategic view on industries and invests very heavily in them”, Harris said.

He added that it was “interesting” that the insurer had chosen to list in New York over Hong Kong, but US investors “will be interested [in FWD] and there does seem to be a slight thawing with the view towards Chinese companies — and this will be recognised in New York as a Chinese company”.

Li started FWD with the $1.2bn acquisition of ING’s pension and insurance businesses in Thailand, Hong Kong and Macau. The expansion strategy of Huynh Thanh Phong, FWD’s chief executive, has focused on pairing moves into new Asian markets with the use of technology to reduce the paperwork and complexity common to the industry in the region.

The group has swallowed up competitors as rival financial groups have retreated from the region, including MetLife’s Hong Kong business and the insurance business of Thailand’s Siam Commercial bank, the industry’s largest-ever takeover in south-east Asia.

“[SCB was] the prize asset that everybody wanted to go after,” Phong told the Financial Times in an interview this year. FWD eventually acquired SCB for about Bt93bn ($3bn) in 2019, giving it a 36 per cent market share in Thailand in bancassurance terms, bigger than the next three groups combined.

FWD has submitted a confidential filing for the IPO to the US Securities and Exchange Commission. That will allow it to submit other documents confidentially to the SEC before filing a prospectus publicly.



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