There are a significant number of common denominators in companies that have successfully listed on the London Stock Exchange.
The first fundamental factor is the level of preparation the company has undertaken prior to the flotation. Successful companies will already have adopted the operational processes internal audit and corporate governance common to all listed companies before announcing their intention to float. Substantial investment will have been allocated to building a strong management team, robust financial infrastructure and last but not least an active investor communication strategy.
Companies with an established business model and trading track record should be subjected to financial benchmark scrutiny including Debt to Equity Ratios, Earnings per share and Return on Equity ratios.
Perhaps the greater risk and potential reward comes from the Initial Public Offerings of companies with little or no trading history. Factors which could play a major part in the selection of such a company could include.
- Strong evidence of high calibre Board of Directors and Non-Executive Board Members. High Profile professionals with an exemplary track record in their chosen field are not likely to be associated with a damp squib.
- Due diligence may support the companies projections and market research after due consideration of the professional advisors and bankers employed by the company.
- A fundamental characteristic of a listed company is a low level of debt to turnover combined with robust capital management structures.
- The strength of the brand and potential place in the industries hierarchy are an important consideration.
- Last but not least the Net Asset value of the company should underpin the company’s short and medium term business model.
Assuming the company can demonstrate via its business model that it can outperform the competition in its chosen sector on these benchmarks a company with a compelling Equity story may well achieve a measure of success upon Flotation which will be reflected in the level of investment from Institutional Investors which will be reflected in the share price.