Share float fever back with a bang

HAPPY DAYS are here again for share flotations as economic recovery and a rallying stock market whet investors' appetites for a new crop of companies that want to go public.

About 130 companies have obtained a UK share listing or a quote on the Alternative Investment Market so far this year compared with a total of 228 for the whole of 2002, according to the London Stock Exchange.

At first glance, the gap looks too wide to bridge with barely two months before the year closes. But the pace of new-issue activity is gathering momentum as companies become more confident of getting a positive reception from surging equity markets.

In the US, internet search engine firm Google is seeking a flotation worth $15bn (£9bn) or more by early next year, a move that some observers see as heralding a new multi-year technology boom.

In Britain, Wolfson Microelectronics broke a two-year drought in the technology sector with a £215m market debut that was heavily oversubscribed.

'The new-issues market is back with a vengeance, especially in the technology sector,' said Tom Kristensen of stockbroker KBC Peel Hunt. 'I am meeting several companies every week that are planning to come to the market over the next few months.'

Kristensen's firm advised one hot newcomer, IP2IPO, to a £100m float in October.

Shares in Wolfson and IP2IPO have run up big premiums to their offer prices although investor euphoria for new issues is by no means confined to hi-tech.

Melrose Resources, set up by the founders of 1990s stock market star Wassall, opened at a 30% premium late last month. Bulletproof glass maker Romag and restaurant developer Clapham House are among those being tipped for a confident start later this month.

More than £2bn has been raised from flotations so far this year yet this is only a fraction of the £19bn raised during the dotcom fever of 2000.

As more and more companies get off to a good start, it becomes a self-feeding cycle. Investors, spurred by a rising stock market and the opportunity of a quick profit on flotations, start to pour money into new issues - in turn encouraging more wannabees to join the queue.

'There has been a backlog of companies that were planning to float and now see a window of opportunity to come to the market,' says Kristensen.

The run-up to Christmas is often a busy time for new issues. At least a dozen more companies are known to be finalising plans for flotation. They include theme venues operator Tussauds and medical-devices maker CST.

One reason for the Christmas rush is that equities often perform well during this period because of investors' optimism about the year ahead and their willingness to plough more money into equities. This makes it an ideal time for companies to tap the markets.

If the stock market stays buoyant, the flow of new issues is likely to turn into a glut, leading to bulging fee income for City advisers. But the upshot could be a dilution in the quality of businesses being floated, though financiers say the current crop looks promising so far.

Kristensen said: 'The quality of companies we are seeing at present is better than those three years ago. They have spent a longer incubation period as proper businesses and are either profitable or close to becoming profitable.'

That said, some seasoned fund managers are pulling in their horns even as the party gets into full swing. One City-based money manager says: 'People are becoming over-confident. The market is already up 30% but institutional investors are piling in as they are scared of missing the next leg up in a rising market.'

Although the new-issues market may still be some way from reaching bubble mania, investors would do well to remember billionaire Warren Buffett's observation: 'You pay a high price for a cheery consensus.'