The UK stock market has faced a troubling trend in recent years: an outflow of companies. IR teams play a crucial role in reversing this trend. To understand how, we spoke with Charles Hall, head of research at Peel Hunt, to explore what UK IR teams can do to counter the outflow and revitalize the market.
A negative spiral
We are witnessing a negative spiral: on one end, a limited number of new IPOs, and on the other, recurring bids from industrial and financial players looking to acquire companies. This has left the UK market in a precarious position.
‘If we had an active IPO market, we would not have as big a problem with companies being bid for,’ explains Hall. ‘But the total net departures are currently at unprecedented levels. It is a direct impact of fund outflows, which affect valuations – creating a tempting set-up for bidders.’
We are witnessing a negative spiral: on one end, a limited number of new IPOs, and on the other, recurring bids from industrial and financial players looking to acquire companies.
This is a problem that is detrimental to the long-term health of the UK market. ‘The capital market provides equity to growth companies, and without that UK economic growth will suffer,’ Hall adds. ‘That is where we are at the moment: having fewer publicly listed companies diminishes investor choice and reduces market liquidity, which can have a long-lasting effect on the overall economy.’
In contrast, some markets have thrived. My own home market, Sweden, was recently highlighted by the Financial Times in an article titled How Sweden’s stock market became the envy of Europe. To go into all the whys and hows would require more space than this format offers, but I asked Hall whether he believes there is anything British IR teams can do to reverse the trend.
He believes IR teams play a critical role in stemming the outflows and offers a few concrete suggestions.
1. Widen your search for new investors
Hall explains that reaching beyond traditional investors in the UK is important as they are being affected by outflows, which are pushing share prices down. IR teams need to focus on investors from abroad. Hall acknowledges that it is harder to reach overseas investors but, with the right set of tools and data, it can and should be done.
2. Be thoughtful and persistent in finding pockets of demand
Hall emphasizes the importance of smart investor targeting. There are thousands of portfolio managers out there, and a lot of them will say no. But IR teams need to be willing to spend the time required to set up a diversified and strong ownership base. Sometimes the demand to invest in a UK company is bigger among investors with a small current exposure to the UK market. It is a numbers game and IR teams that work the smartest and hardest with investor targeting will get the payoff.
3. Make it easy to invest
This sounds simple, but what Hall means is that companies should simplify the story and provide investors with all the information they need to compare your company with others. The goal should be to serve them with the right info on a silver platter to pique their interest, then in phase two it is time to go deeper.
As the UK stock market faces increasing challenges, IR teams have the opportunity to make a significant impact by expanding their search for international investors, persistently targeting pockets of demand and simplifying their investment narratives. By doing so, they can help reverse the outflow of companies and strengthen the market’s long-term prospects, ensuring the UK remains competitive on the global financial stage.
Petter Hedborg is CEO and founder of Modular Finance
