Chief executive of Fintel, Matt Timmins
Many small businesses listed in London would attract a higher value if their shares were traded elsewhere, the boss of an AIM-All Share financial technology firm has said.
London’s attractiveness as a destination to publicly list a business has come under pressure in recent years, with its detractors highlighting evidence of undervaluation, poor performance and weak liquidity among concerns.
The impact has been to see London snubbed by major firms looking to go public, such as semiconductor firm ARM, companies being snapped up by private equity, and groups switching their listing to rival markets or delisting entirely.
Floats on the London Stock Exchange plunged by a third in the first six months of 2023.
However, bosses must weigh potential disappointment with their firms’ share prices with potential advantages of the UK market, such as the ability to raise cash easily when required.
Matt Timmins, co-chief executive of Fintel, which listed on London’s junior market just five years ago, told This is Money: ‘As a relatively small capitalisation company, it is quite difficult to demonstrate your value to the market.
‘Particularly at a time like today, when we’re seeing redemptions in terms of small cap stocks.’
The FTSE AIM 100 – a group of top 100 small companies on the market – has slumped 21.2 per cent over one year and nearly 40 per cent over five.
The broader FTSE AIM All Share index, made up of companies with an average market capitalisation of around £110million, is down 15.2 and 31.3 per cent over one and five years, respectively.
Meanwhile the comparative giants of the FTSE 100 have added 2.8 per cent over one year but fallen 3.3 per cent over five years, which still reflects underperformance versus international peers.
Fintel’s share price has been volatile over the last 12 months
Timmins said: ‘Like ourselves, there are many undervalued small cap businesses that, if they were private or listed on another market somewhere else, would be valued much more highly than they are at the moment.
‘You tend to find that the liquidity with a lot of small caps just isn’t there, with very low average daily volume trades.
‘A lot of small caps are still vastly held by institutions rather than retail investors. So you haven’t got a lot of movement in the stock on a day to day basis.
‘And, when institutions do make redemptions, it makes it difficult to get traction in upward movement on share price.’
Fintel shares are up by around 30 per cent since listing in 2018, but have fallen by around 1.5 per cent since the start of the year to 207p.
Timmins added: ‘We’ve done our own calculations, and we’ve had other institutions do [discounted cash flow] and financial ratio analysis of the business.
‘And we believe that the business should be trading a lot more positively than it is.’
However, Timmins conceded that there are positives to listing as a small business in London, with Fintel in 2019 raising the cash for the £74.3million takeover of financial information and ratings business Defaqto in just three days.
He added: ‘As a private business, it would have been incredibly difficult for us to have done that deal.
‘You have to balance the positives and the negatives when looking at being a listed business.’
Fintel supports retail financial services businesses, such as financial advisers and wealth managers, with products to help the market work more efficiently and tackle regulatory burdens.
Takeovers and investments are a key part of Fintel’s growth strategy going forward, with the launch of its Labs unit, which is designed to take stakes in small fintech businesses, provide support to them and ultimately acquire them entirely once they mature.
Labs’ first deal was made in March of this year, with the group taking a 25 per cent stake in Plannr for £1million. The fintech minnow provides specialist client relationship management capabilities for financial advisers, planners and wealth managers.
Timmins said: ‘What we’re seeing now for the first time is new entrants to the market with new pieces of fintech that are built and developed in a much more iterative way. Very often, like Plannr, for example, they’re built with a cohort of users from the very beginning.
‘What they need is some investment and some help with things like distribution, and therefore they need more of an investment partner rather than someone coming in straightaway and acquiring all of it.’
Fintel is currently in ‘material discussions’ with 11 other small fintech businesses, which could soon join the Labs platform.
Timmins added: ‘There’s an internal question as to when a business stops becoming a Labs business and becomes a Fintel business.
‘While the businesses are in Labs, we will we hold a minority stake and we’ll be investing into them. Those businesses will eventually graduate from Labs and become a standalone core business within Fintel alongside Defaqto and [regulatory support business] SimplyBiz. And that’s when you’ll see the impact on P&L.’
Labs businesses will eventually ‘graduate’ to become key Fintel business units like SimplyBiz and Defaqto
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