Is Shawbrook IPO the start of a market revival?

Successful float could tempt other companies to test the waters

Hello Rainmakers,

Shares in challenger bank Shawbrook surged this morning as trading kicked off on the London Stock Exchange at 370p valuing the business at £1.92 billion, with the price hitting 400p by mid-morning.

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The largest UK IPO of the year will fund further acquisitions by Shawbrook, which has bolted on 24 lending businesses since 2011, but also inject some vim into a moribund London market, which has been reeling from a number of departures recently.

For context, as old economy Manchester-based engineering and chain manufacturer Renold leaves, shiny Shawbrook enters. Renold confirming it has been bought in a £186.7m deal where US-based Morgenthaler Private Equity has acquired the company.

Russ Mould, investment director at AJ Bell, said: “A successful IPO, with an active after-market, would be a boost for London, which continues to take plenty of criticism for the relatively limited number of new joiners in the past couple of years, particularly relative to the number of departures.

“The early signs are encouraging with a mid-range offer price and an upward share price move in conditional dealings, helped by ongoing investor interest in banking stocks, which seem to be firmly back in favour, judging by their barnstorming run of the past couple of years. In 2022-23 it was almost impossible to give them away on big discounts to book value, but now the Big Five FTSE 100 banks trade at a premium to NAV, and a couple of the Challenger Banks do so, as well, including OSB and now Shawbrook.

“A successful float could tempt other companies to test the waters in London, be they financials or companies from other sectors, especially as the FTSE 100 index’s run of all-time highs suggests sentiment is more favourable and it may be easier to find willing buyers at valuations that are sufficient to satisfy would-be sellers.”

For Marcelino Castrillo, Chief Executive of Shawbrook it’s been a good week with the price landing in the mid-range of where they hoped, though just short of the £2bn valuation they maybe dreamed of.