Wise has recently joined the ranks of businesses looking to list their shares in the US, rather than the UK. And at least for the time being, the direction of travel seems to be one-way.
A big reason is the fact that companies think – with some justification — that they can attract higher valuations for their shares across the Atlantic. But could there be more on the way?
Rentokil Initial
There have been reports that activist investors at Rentokil Initial (LSE:RTO) might be pushing for a US listing. And this could be a reasonable idea.
Like Ashtead (which is in the process of switching its primary listing) the firm generates most of its revenue in the US. So it wouldn’t be entirely out of place on the New York Stock Exchange.
There’s also reason to think the stock could trade at a higher multiple in the US. Rollins – its main competitor – trades at a price-to-earnings (P/E) ratio of 58, compared with Rentokil at 29.
No two businesses are exactly alike, though, and the FTSE 100 firm has a lot more debt. It’s also been struggling to integrate a big acquisition, which has been weighing on margins.
Given this, the stock trading at a lower multiple than Rollins might be reasonable. But I think it’s cheaper than it should be at the moment, which is why I’ve been buying it.
The prospect of the company transferring its listing to the US might help close the valuation gap. That’s not part of my investment thesis, but I do think it’s a realistic possibility.
Experian
My Fool UK colleague, Ben McPoland, suggested Experian (LSE:EXPN) as another UK company that might consider moving its listing to the US. And it’s easy to see why this might make sense.
The firm’s largest market is the US, which accounts for around 67% of revenues. And its next largest market is Brazil, which doesn’t exactly provide a reason for listing in the UK.
Experian is a terrific business – it provides reports that banks need at a fraction of the cost of the risk they offset. And its data gives it a big competitive advantage.
At a P/E ratio of around 37, the stock doesn’t look obviously undervalued. In fact, it looks as though the UK stock market is doing a decent job at recognising the quality of the business.
There are also risks to consider – if US inflation causes interest rates to rise, mortgage demand might fall. And this could have a knock-on effect on Experian’s business.
Despite the risks, Experian’s US-listed counterparts trade at much higher P/E multiples. So there might be a decent case for thinking the FTSE 100 stock could do better across the Atlantic.
Are UK shares undervalued?
While no two businesses are exactly alike, UK shares clearly seem to trade at lower multiples than their US counterparts. But from an investment perspective, I see this as an opportunity.
Buying shares in above-average businesses at below-average prices is ideal for long-term investors. And that doesn’t depend on the stock trading at a higher multiple in future.
If the share price stays low, I think there are returns to be made from dividends and share buybacks. And that’s why UK equities make up the majority of my Stocks and Shares ISA.
