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ALEX BRUMMER: Clouds lift over UK floats

ALEX BRUMMER: Smooth arrival of Darktrace on London Stock Exchange will be encouraging for next batch of IPOs on the slipway

The key to successful tech floats is the quality of the intellectual property. If investors believe in the soundness of the science behind the company, that goes a long way when they come to market. 

Darktrace passed that credibility test with its London float in spite of the overhang of backing from Invoke, the investment vehicle of Mike Lynch, the Autonomy tycoon fighting extradition to the United States. 

The firm learned important lessons from the over-hyped Deliveroo float. Initial hopes of a valuation close to £3billion were sensibly put to one side by founder and chief executive Poppy Gustafsson, a refugee from Autonomy. By deploying second tier investment bankers, Jefferies and Berenberg, rather than the bigger names of Goldman Sachs and JPMorgan, which were involved in the Deliveroo imbroglio, grandiosity was avoided. 

Success: The key to successful tech floats is the quality of the intellectual property

Darktrace uses Cambridge-developed artificial intelligence to help clients detect cyber attacks and unusual behaviour from within. It is not alone in this universe. Israel’s Varonis Systems, quoted on Nasdaq, counts Microsoft and the Pentagon among its clients, using brilliant tech which sifts through email and other systems in search of rogue behaviour. Early Deliveroo investors received a pasting because of the herd behaviour of the corporate governance mavens among the UK’s long investors. 

But it is likely that some of the individual fund managers may eventually decide that concerns over working conditions of Deliveroo riders may be overdone. 

There is a tendency to forget that Amazon shares, first quoted at $1.73 (£1.26p) in May 1999, were also given a wide berth at first on ethical grounds. Investors disapproved of the destruction of bookshops and the hit to publisher pricing power. Amazon shares now trade at $3471.31 (£2,534) each after the latest stonking first-quarter results. 

That is not to say Deliveroo will become the next Amazon. To do so would require it to find new, more powerful streams of income, as Jeff Bezos has done with cloud computing. But as Kingfisher boss Thierry Garnier pointed out in his Daily Mail interview this week, the eventual winners in the e-commerce space are those firms with the fastest turnaround times from order to front door. Deliveroo is good at that. 

The smooth arrival of Darktrace on the London Stock Exchange will be encouraging for the next batch of IPOs on the slipway. Broker Numis estimates that there might be as many as 25 floats of a decent size weighing up a London introduction. 

Among the bigger hopefuls is fintech firm Wise, which has several years of profit to show. It is transforming the market for overseas payments by charging a small transparent fee of 0.4 per cent to 0.5 per cent and eliminating the greedy turn of 3 per cent to 4 per cent which some banks make on currency transactions. 

There is no shortage of unicorns awaiting a market debut.

Staley wins 

In line with Britain’s other High Street banks, Barclays had a good first quarter. Chief executive Jes Staley’s faith in investment banking is rewarded again. Barclays is the only European financial group keeping up with the Wall Street giants by grabbing a decent share of IPO and trading income. Retail banking also did well, assisted by Chancellor Rishi Sunak’s breaks for homebuyers and booming credit card lending. 

In spite of the bank firing on all cylinders, with returns above 10 per cent, better than forecast profit and Staley’s upbeat words, the shares tanked. 

No one can be sure that the IPOs, bids and deals and market buoyancy will be sustained. In contrast to HSBC, Lloyds and Natwest, Barclays chose not to move funds from provisions for bad debts back into the profits in spite of a UK economic bounce. It is not clear that Barclaycard will do so well as the economy unlocks and the better-off consumers dip into their savings to spend. 

This may all be excessive caution. But as the financial crisis showed, a strong balance sheet is a virtue when the tide goes out.

Flight risk 

Wounds from Astrazeneca’s vaccine troubles with the EU would have benefited from some socially distanced face-to-face diplomacy from its French chief executive Pascal Soriot. Instead, he chose to remain marooned in Sydney with his family in spite of murmurs of disquiet on the board. Irritation may be subdued by buoyant China sales, progress for breakthrough cancer drugs Lynparza and Imfinzi and a 4.3 per cent jump in the shares. Nevertheless, Soriot should end the drift and catch the next flight.