Which IPOs Should You Invest In?

New company flotations are all the rage these days, what with Royal Mail (LSE: RMG) making the headlines late last year, and the new TSB Banking Group (LSE: TSB) and Zoopla (LSE: ZPLA) offerings having gone well last week.

But does the appetite shown by investors support a genuine bullish mood right now? You could certainly think that if you’d only looked at the big headline-making flotations — with demand strong, Lloyds Banking Group sold off a full 35% of TSB, and the price has already risen.

But over the past 12 months, which IPOs have done best for investors? Here’s a look at a few key ones over the past year:

Company IPO date IPO Price Recent Price Gain/Loss
25 Sep 2013 230p 275p +20%
Royal Mail 15 Oct 2013 330p 488p +48%
AO World
03 Mar 2014 285p 262p -8%
Pets at Home
17 Mar 2014 245p 205p -16%
17 Mar 2014 300p 305p +2%
Brit Group
02 Apr 2014 240p 238p -1%
Just Eat
08 Apr 2014 260p 249p -4%
Saga (LSE: SAGA)
06 Jun 2014 185p 169p -9%
Game Digital (LSE: GMD)
06 Jun 2014 200p 209p +5%
Zoopla 18 Jun 2014 220p 231p +5%
TSB 20 Jun 2014 260p 289p +11%

Good starts needed

Apart from the big two of Royal Mail and TSB, it’s been a pretty mixed bag really — and it’s widely thought that those two were sold off at good prices in order to get a good take-up. The flotation of Royal Mail has been criticised as having been priced too cheaply, but privatisations tend to have political aims behind them rather than always trying to get the highest price for the existing owners.

And a good start to the offloading of TSB really was needed, as Lloyds has to fully float the bank by next year — and by pricing the offering modestly at less than book value, a larger portion than the originally intended 25% could be sold, paving the way for a possible further sale later in the year.

Flagging enthusiasm

With the public’s enthusiasm for flotations dropping off and a few, like AO World and Pets At Home, trading below their flotation prices, Game Digital was forced to lower its offer price to 200p when it floated in June. The firm, resurrected from the old Game Group that went bust back in 2012, has since seen only a modest rise in its share price.

The same had happened earlier with Saga, the over-50s holiday group. After a initial range of 185p to 245p announced for its IPO price, the eventual offering happened right at the bottom of that range. And even after that, the shares are trading today at a 9% loss.

And fashion retailer Fat Face pulled its planned flotation in May as enthusiasm for new offerings has waned.

Buy at IPO?

So what’s the overall picture like for IPOs? Well, with the possible exceptions of privatisations of companies partly or wholly taxpayer-owned, the aim of a flotation is to raise as much money as possible for the current owners — not to give wannabe investors a good deal. So don’t be fooled into thinking an IPO is a sure-fire winner — at IPO is actually not often the best time to buy!

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Alan does not own shares in any companies mentioned in this article.