Will the boom continue after record year for IPOs?

With 2021 turning out to be a great one for UK IPOs, we look at how activity is shaping up for 2022.

A boom year for initial public offerings (IPOs) won't come to a screeching halt, a City broker said today after forecasting a return to the “healthy” volumes seen in 2018-19.

This year has been the best on record for UK IPOs after stocks including Deliveroo (LSE:ROO), Dr. Martens (LSE:DOCS), Moonpig (LSE:MOON), Trustpilot (LSE:TRST) and Oxford Nanopore (LSE:ONT) made their market debuts with varying degrees of success.

One of the best performances has come from cybersecurity firm Darktrace (LSE:DARK), although its trebling in value since April has been clouded by a significant bout of selling in recent days.

Heightened volatility at the start of October and worries that rising energy prices will lead to higher interest rates have taken some of the steam out of Europe's IPO market, leading to a cut-price debut for trucking services firm Eurowag in London and the recent scaled-back offering by Volvo (OMX:VOLCAR B) in Stockholm.

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A slowdown was always inevitable, particularly as many IPOs were delayed into this year due to the pandemic. But a note from broker Liberum today argues there is no such thing as IPO fatigue and says that the main driver will continue to be past stock market returns.

For this reason, it believes talk about an end to the IPO boom is exaggerated.

Liberum said: “We have seen extreme levels of IPO activity in the first three quarters of this year and activity levels are likely to decline in Q4 and early 2022.

“But our forecasts indicate that we are only going back to the averages of 2018 and 2019, which means that the number and volume of IPOs should remain healthy.”

The number of UK IPOs is forecast to decline by half in the fourth quarter compared to the 2021 average, but at a forecast £2.1 billion, volume will still match the first quarter of the year.

Liberum expects the mix of sectors involved to change, with the tough conditions facing retail and consumer-focused IPOs offset by the energy, renewable energy and financial sectors, where there's a much better environment than even three months ago.

The broker said activity so far in 2021 had been “extraordinary”, with the rolling 12-month number of UK IPOs of more than £10 million market cap at an all-time high of 78 in October.

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In the US, there have been a record 539 IPOs over the same time period, while the eurozone has seen 357 IPOs, the highest since the financial crisis. The average size of the newly listed companies has also increased compared to last year.

Confidence in the IPO outlook has also been assisted by a stock market revival since mid-October, with the FTSE 100 index last night trading at a 20-month high and Wall Street at record levels.

The 12-month return of the FTSE All-Share currently stands at 26.6%, or 30.8% including dividends.

While the mood has improved, Liberum's latest sentiment review suggests that several stocks rated by its analysts as “buy” recommendations have been severely oversold. The list includes Halfords (LSE:HFD), Kier (LSE:KIE), Balfour Beatty (LSE:BBY), Babcock (LSE:BAB) and Card Factory (LSE:CARD).