As the Government and FCA now consult on Lord Hill’s recommendations in his long-awaited review into the UK listing regime, new research from Peel Hunt and the Quoted Companies Alliance (QCA) sets out a list of demands from investors and corporates for how regulators and policymakers can unlock growth in the equity markets, while revealing the significant role the investment community played during the pandemic in providing emergency capital to cash strapped corporates.
According to the latest QCA/Peel Hunt Mid and Small Cap Survey*, 65% of investors and 56% of companies believe the UK public equity markets were effective in 2020, in protecting jobs, saving businesses and maintaining liquidity throughout the COVID-crisis. Despite little prospect of dividend growth over the medium term, active investors injected £45.9bn of new capital into UK listed companies across 333 fundraisings (over £5m in value) since the first lockdown began in March 2020, as the investment community backed management teams and the long term success of UK plc.
While 77% of investors and 66% of companies think that the temporary actions taken by UK financial regulators and policymakers to help companies access finance through the pandemic were helpful, both groups have called for some temporary measures to be expanded upon and made permanent, to strengthen corporates’ ability to raise emergency financing while speeding up the UK’s economic recovery.
However, the report reveals that investor and corporate optimism for the future remains worryingly low, with only 21% of investors and 5% of companies believing that the number of listed companies will increase in 2021. 58% of companies believe that the UK’s burdensome listing requirements and excessive regulatory scrutiny are the main causes of shrinking markets, while the availability of cheaper capital from venture capital and private equity, and the increased appeal of debt financing in the current low interest rate environment, also contributed to this downward trend.
Supporting the recent recommendations in Lord Hill’s UK Listing Review, 67% of investors called on policymakers to improve tax incentives for pension funds and insurance companies to invest in small and mid-cap companies. 58% of investors also asked for the tax treatment of debt and equity to be rebalanced, while 52% of corporates said the costs of being on the public markets should become tax deductible.
And, in a sign of growing support for retail investor access, 60% of companies called on regulators and policymakers to provide further incentives to increase private investors – regarded as important providers of liquidity - on the share register. According to separate analysis from Peel Hunt, just 96 of the 333 equity raises (29%) and 10 of the 38 IPOs (26%) in 2020 had a retail element, despite 58% of companies surveyed believing all IPOs of a certain size should have a certain proportion offered to UK retail investors.
Finally, 78% of investors and 73% of companies said that mid and small-cap companies should be exempt from overly-restrictive MiFID II research unbundling requirements, which they believe would improve market knowledge, liquidity and active interest from a wider pool of investors.
Steven Fine, Chief Executive of Peel Hunt, commented:
“The events of 2020 made for an extraordinary year, unlike anything we’ve seen before, as corporates of all sizes faced a pandemic-induced liquidity crisis that not even the most bearish scenario planners had foreseen. Dividends and share buybacks were halted and capex was reined in. Companies lined up to raise fresh capital to keep their operations afloat. And the investment community answered their call, injecting more than £46 billion into UK plc over the past year alone.
“Things are already looking up in 2021, with a backlog of delayed IPOs now coming to market, and the Government’s vaccination programme and roadmap out of lockdown providing hope that a return to normality is in sight. But many challenges still remain, from spiralling public sector debt and ongoing regulatory concerns to continued uncertainty over the City of London’s future relationship with the EU.
“While we are all hopeful that the recommendations in Lord Hill’s long-awaited review will turn into decisive actions, providing a shot in the arm for the UK listing regime and helping the UK regain its crown as the destination of choice for private companies seeking capital, it is only the first of many doses needed to unlock growth and heal the scars that the pandemic has left behind.”
Tim Ward, Chief Executive of the QCA, commented:
“Amidst the chaos of the early days of the pandemic, and the ongoing challenges for many businesses needing finance to bridge uncertain times, the UK’s public equity markets showed their worth. The evidence shows that publicly quoted companies were able to use the markets to seek financing when needed and that there was a pool of active investors ready to provide liquidity and see them through the hard times, with a long-term view to the future.
“The story of the last 20 years has been about the decline of the UK’s public equity markets, and in particular a consistent shrinking of the number of small and mid-sized companies using them, preferring instead to opt for low cost debt or private equity.
“The need to stimulate our economy, combined with the opportunities that leaving the EU provides, can build momentum to revitalise the UK’s public equity markets. Lord Hill’s Review of the UK listing regime has come just in time and we hope this forms part of a well-coordinated approach from the Government that will lead to an expanding small and mid-cap ecosystem in the UK.”
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Notes to Editors
* The findings of this report are based on surveys with 103 UK-based fund managers and 141 mid or small-sized quoted companies in late 2020.
For more information contact:
MHP Communications (Peel Hunt)
Rachel Mann, Robert Collett-Creedy
+44 20 3128 8742
The Quoted Companies Alliance (QCA)
Anthony Robinson, Head of Communications
+44 (0) 20 7397 8148
About Peel Hunt
Peel Hunt is an investment bank with highly rated, sector-aligned Research, Sales and Investment Banking teams, with a current retained corporate client list of c.150 listed companies, over 1,100 institutions who have signed up to receive its research, and a trading platform that makes markets in c.3,500 equity and fixed income products.
Peel Hunt ranked 1st for research in the 2020 Institutional Investor Survey (previously known as Extel) of UK Small & Mid Cap Brokerage Firms for the fourth successive year, while its sector teams achieved more Top 3 rankings than any other broker.
About the Quoted Companies Alliance
The Quoted Companies Alliance is the independent membership organisation that champions the interests of small and mid-sized quoted companies. We campaign, we inform and we interact to help our members keep their businesses ahead. Through our activities, we ensure that our influence always creates impact for our members.
YouGov plc is a global market research and data company built on a simple idea: The more people participate in the decisions made by the institutions that serve them, the better those decisions will be. YouGov completes thousands of interviews every year with senior politicians, business people, members of the media and other stakeholders, providing guidance for clients in how best to optimise their activities and communications.
The company was founded in 2000 and is now publicly listed on the London Stock Exchange’s AIM market. It has over 800 employees in over 30 offices globally including several in the US but is headquartered in the UK. It is a member of the British Polling Council and is also registered with the UK Information Commissioner’s Office.