Poundland shares rally 19 on market debut Pets at Home shares trade below list price

The UK market was greeted by the arrival of two more hotly anticipated  initial public offerings (IPOs) today: Poundland and Pets at Home, with both firms experiencing somewhat different market debuts.

Poundland shares were offered to the market at 300p; giving the discount retailer a valuation of £750m. Yet we saw shares immediately seeing heightened demand and, despite listing at a price set to the top of the valuation range, Poundland shares rallied to trade as high as 358p within less than an hour of its first day as a public company, marking a rise of 19%.

Under current market share prices, Poundland now has a market valuation of just under £900m. Demand for Poundland shares is speculated to have been fifteen times oversubscribed by its bookrunners, JP Morgan and Credit Suisse, which is easy to see given the 19% share price rally on day one.

Meanwhile, Pets at Home shares listed at 245p, valuing the business at £1.22bn but suffered selling pressure immediately to fall 4% within an hour of trading to trade at 236p, hitting a low of 225p on the day.

IPOs can be volatile so caution is required

IPOs are traditionally extremely volatile within the first week of shares being made available to the public. It has become common for shares to endure price swings of around 10% in the first week and as such should be treated with caution as opportunistic traders try to jump on any price wave higher.

More so, various lock-down agreements for existing shareholders (which restrict their ability to cash in their shares for a specific period of time) can also hide impending large sales of shares due three, six or twelve months later down the line.

The success of IPOs are best judged after a period of two to three months, when share price swings have settled somewhat and the true motivations of buyers are known.

London IPOs still in demand

The early indications from both Poundland and Pets at Home IPOs highlight the strong appetite among London investors for IPOs, an appetite indicative of the recent listings of Royal Mail, Foxtons, Boohoo.com, B&M and AO World.

This is excellent news for London as successful IPO launches of major companies also encourages other international private companies considering an IPO to seek London as their potential public home.