Trump tariffs 'could boost UK IPO activity' and international investment

Cavendish Highlights Robust Transaction Pipeline Amidst City Optimism

Investment firm Cavendish anticipates a resurgence in London’s financial sector this year, fueled by an increase in companies pursuing London Stock Exchange listings and a return of international investment triggered by US market volatility. The financial services provider indicated to stakeholders on Friday that it possesses a ‘solid pipeline of transactions in train,’ encompassing ‘further IPOs’ (initial public offerings). This optimistic outlook follows a period of reduced IPO activity, with only 16 new companies listed on the exchange the prior year, a decrease from 20 in 2023 and 42 in 2022.

Cavendish Advocates for Stronger Measures to Revitalize UK Markets

In January, Cavendish’s co-chief executive, John Farrugia, conveyed to government officials that current governmental reforms intended to invigorate the City of London are insufficient. He contended that Britain should implement tax incentives to attract companies to seek listings in London.

A growing number of promising startups are being acquired by private equity firms, while numerous businesses are choosing to remain private for longer durations or pursue listings on competing international exchanges.

Market observers attribute subdued valuations to substantial outflows from UK equity funds, coupled with diminished liquidity and trading activity at the lower spectrum of the market capitalization scale.

Challenges and Opportunities in UK Public Markets

Cavendish acknowledged on Friday the ‘well publicized challenges persist for the UK public markets.’ However, the firm emphasized its proactive role in advocating for market improvements.

‘But with our chair’s recent appointment to the Capital Markets Industry Taskforce, we remain central to the increasing number of stakeholder voices advocating for the policies and initiatives required to revitalise investment in UK small and medium-sized UK companies,’ Cavendish stated.

Potential IPO Boost from Shein and Boots Listings

Speculation within the City regarding potential IPOs this year is focused on prominent names such as fast fashion retailer Shein and Boots. The latter’s listing in London hinges on whether new owner Sycamore can be convinced to select London for the high street pharmacy and retail chain’s IPO.

Nevertheless, the year’s initial performance has been sluggish, with only four flotations recorded in the first quarter, according to data from AJ Bell.

In contrast, takeover activity significantly outpaced IPOs during the same period, exceeding it by more than threefold.

Cautious Optimism for UK and European Equities

Cavendish also communicated to shareholders a ‘cautiously optimistic’ outlook, suggesting that investor sentiment towards UK and European equities ‘may finally be turning’ following ‘a demanding phase’.

The investment bank pointed to President Donald Trump’s tariff policies and governmental expenditure reductions as factors that ‘have heightened US recessionary risks’ precisely when US equity valuations are at historic peaks, alongside an ‘extreme concentration of capital in the largest US tech firms’.

Rotation from US to UK Equities Anticipated

According to Cavendish, ‘These risks to US equities have begun to prompt a reappraisal of diversification, driving a rotation from the US to European and UK equities.’

The firm further elaborated, ‘Whilst this rotation will initially favour the largest and most liquid European and UK stocks, history suggests that any incremental asset allocation to UK equities will ultimately flow through to smaller and mid-cap companies, especially given their attractive valuations.’

‘We believe that a combination of increasing diversification and the compelling valuation of the UK small and mid-cap sector will create significant opportunities in the year ahead,’ Cavendish projected.

Revenue Expectations and Strategic Positioning

Concurrently, Cavendish informed shareholders of its expectation to report revenues of £55million for the fiscal year ending March 31, having achieved profitability in both halves of 2024.

The broker affirmed, ‘As a leading UK small and mid-cap investment bank, Cavendish is ideally positioned to benefit both from this change in sentiment and the ongoing momentum in private markets and will do so from a position of balance sheet strength.’

Cavendish shares experienced a rise of 1.2 per cent in early trading, reaching 8.75p.

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