Last week, video game retailer Game announced plans for an IPO.
Last week, video Game retailer Game announced plans for an IPO.
The retailer plans to list on the London Stock Exchange within the next four weeks and is expected to be valued at £400 million.
This is an impressive turnaround for a business that went bust two years ago and reflects a wider industry trend for retailers to launch an IPO.
Indeed, AO World, Poundland and Pets at Home are just some examples of retail companies that have taken to the stock market this year. So why this trend is occurring and why are retailers so attractive to investors in today’s market?
A number of different retailers are looking to float at the moment, including many that you wouldn’t expect. Investor appetite is clearly there and retailing businesses are responding accordingly.
The fact is that retail investments offer a high yield compared with other investments, which means greater cash generation and more dividends for investors.
What’s more, with interest rates being historically low at just 0.5%, traditional investment products that are linked to interest rates are not providing the returns that investors are seeking.
However, investors need to be careful not to get overzealous becacuse the value of a retailer’s IPO may not be as durable as it seems. Indeed, Pets at Home floated on the London Stock Exchange in March at 245p per share. Take a look at the company’s shares now and you’ll find that they are trading below the original offer price at 201.25p (at the time of writing), having even hit a low of 192.50p a share at one point.
This shows that the retail investment market might have been overheating following a number of high-profile retailer IPOs and is now readjusting itself accordingly. That being said, listed retailers are still providing investors with a good return.
As for Game’s IPO, it could be a happy ending for a retailer which has gone through a radical transformation. OpCapita has done a good job at structurally changing the business in line with market trends and investor demands.
At the same time, it has given Game a relevant consumer proposition in an industry that is heavily dominated by online giants such as Amazon.
While there is still work to be done, it is likely that this business - which is generating a significant level of cash - will be another retailer that proves to be attractive to equity investors looking for high returns.
- Dan Coen, Director, Zolfo Cooper