Existing Competitive Environment in Corporate Finance

 

Write a report explaining why "Boohoo" and "Servelec" came to the AIM and Main market respectively, they differ in their choice of market and whether they created value in their post-IPO period.Discuss the various reasons for IPOs

 

 

 

Report on IPO in London Stock Exchange

Introduction

Boohoo Plc
Boohoo is one of the UK largest online own brand retailer company .The Company was founded in 2006 &is in the business of marketing, selling & designing own brand accessories, clothing & shoes through the www.boohoo.comwebsite.Boohoo has established brand in Australia& U.K and sells products over 100 countries.The Company’s ambition is to have growth prospects in both the domestic and international online markets.

Boohoo plc is required to produce its annual report and accounts by the year ended 28 February 20XX. 

Many New international opportunities have been prioritised based on :
•    Market size
•    Delivery infrastructure.
•    Existing competitive environment.
•    Spending on fashion.
("BOOHOO Share Fundamentals (BOO) - London Stock Exchange")

Servelec Group plc
Servelec is a UK-based technology groupproviding software, hardware and services to the healthcare, oil & gas, nuclear, power, water, utilities and broadcast sectors.
Servelec operates through www.servelec-group.com &is required to produce its annual report and accounts by the year ended 31st December 20XX.
The group consists of two divisions:
•    Servelec Healthcare.
•    Servelec Automation.

Servelec Healthcare is mainly into designing,development and implementation of software within secondary care settings and it is also the market leader in Mental Health and Community Health.
Servelec Automation is supplier of safety systems, protection systems and control systems. It provides consultancy,design, implementation, installation and on-going customer support services. 
("SERVELEC GROUP Share Fundamentals (SERV) - London Stock Exchange")

Listing in London Stock exchange

London stock exchange is located in the city of London in U.K. It is a financial information company.By listing on London stock exchange it helps companies to access deepest of international market .Listing can be done either in Alternative Investment Market or in Main Market. 
Boohoo Plc was listed in Alternative Investment Market whereas Servelec Group plc. was listed in Main Market.

Boohoo Plc.

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Boohoo was listed inAlternative Investment Marketof London stock exchange on 14th march 2014. 
AIM is the London Stock Exchange’s international market for smaller, venture capital, including early stage & established companies for access to growth capital. It is supported by experienced advisers, lawyers, accountants & investors firms.

The main reasons for listing in Alternative Investment Market of London stock exchange are:

•    Oncethe shares are listed it becomes easier to pay for merger & acquisitions as funds from issue of shares can be used to fund an acquisition instead of using further borrowings. 
•    Regulation becomes lighter and cheaper for corporate transactions.
•    Leads to improved value as higher multiples are applied to listed companies and positive share price performance.
•    Leads to enhanced corporate image, increase public awareness & company profile.
•    Increased employee participation through share schemes & hence higher motivation if employees see increase in the company’s share price.

Servelec Group plc.

ServelecGroup plc was listed on the Main Market of the London Stock Exchange on 2nd December 2013.
Main Market is for larger & established companies .In the Main Market large pool of capital can be raised which provide access toglobal dimension and provides a market where its shares can betraded widely. Company can raise capital to develop its business or spread or dilute their risk.The various reasons for listing in main market are:
•    Listing on main market of London Stock exchange provides access to capital which could be useful for raising finance for development at the time of Initial Public offer and further capital raisings.
•    By listing on main market demand for the shares increases, company's liquidity improves & investors are more comfortable investing in a business which listed on the Main Market as it seems to be more secured.
•    Listing on main market facilitates acquisitions as it increases the ability of the company to make acquisitions using shares listed as currency.
•    It helps in creating a market for the company's shares to broaden the shareholder’s base.
•    It helps in improving employee commitment&retention  as company can use shares(ESOP’S) as an employee reward.

IPO’s
Initial public offering (IPO) is a type of public offering in which shares are sold to institutional investorswho then sells to the general public .& by this process a Private company is transformed into Public held company.
Reasons for Initial public offer:
•    Cash
•    Creditability
•    Currency
•    Liquidity.
Cash
Large number for companies looking forward for growth of their go IPO for raising funds & uses them for capital expansion project or for paying off their existing debt. 
Creditability
A publically traded company has to meet various federal regulations& as companies goes public it provide a sense of corporate stability.
Currency
In case of public stock company can use its stock as currency to buy other company.
Liquidity
A publically traded company employee’s can get reward for their efforts referred as ESOP & can sell their shares over the time to the company.
Other reasons for Initial Public Offer are:
•    Raising funds through IPO’s leads to an increased public awareness as IPOs usually generate publicity &subsequently leads to an increase into market share of the company. 
•    Companies gain an additional leverage while obtaining loans from financial institutions& banks.
Fundamentals
Boohoo Plc.
The following are fundamentals From Pre IPO to Post IPOperiod.(28th February 2013 & 28th February 2014)
•    The revenue has been increased from 67.28 £ m to 109.79 £ m 
•    Profit after tax has been increased from 2.57 £ m to 8.43 £ m.
•    There has been increase in earning per share from 0.23P to 0.75P.
•    Total assets has been increased from 17.95 £ m to 28.54 £ m.
•    There has been increase in equity funds from 1.81 £ m to 9.76 £ m.
Servelec plc group
The following are fundamentals From Pre IPO to Post IPOperiod.(31st December 2013 & 31st December 2014)
•    The revenue has been increased from 42 £ m to 51.75 £ m.
•    Profit after tax has been decreased from 8.93 £ m to 8.69 £ m.
•    There has been decrease in Earning per share from 26.16P to 12.70P.
•    Total assets has been increased from 59.52 £ m to 84.92 £ m.
•    There has been increase in equity funds from 45.03 £ m to 55.29£ m.
Post IPO Market valuation:
Boohoo Plc
The share price had fallen from 70 GBP on 14th March 2014 to 23 GBP on 28th February 2015 & further increased to 41.5 GBP on 29thFebruary 2016. So the price per share has been fluctuating
There has been increased in the turnover by 63% (from 67,282 GBP’000 to 109791GBP’000). Gross Profit is increased by 77 %( from 36663GBP’000 to 64912 GBP’000).There has been 43% increase in net cash flow at the yearend 2014.
So there has been increased performance of Boohoo PLC post IPO but the share price has fallen. There has been increase in:
•    Turnover
•    Gross profit
•    Net cash fowl
"BOOHOO Share Fundamentals (BOO) - London Stock Exchange".Londonstockexchange.com. N.p., 2016. Web. 7 June 2016.
Servelecplc group
Since IPO the share price of Servelec has increased from 215 GBP on 2nd December 2013 to 300 GBP on 31st December 2014 & 333.25 GBP on 31st December 2015.Its turnover has increased by 6.7%(from 39.4m to 42m)& cash flow from operating profit increased by 8%(8.4m to9.1m).As at 31 December 2013, Servelec had cash balances of £7.5m and a profit to cash generation of 83%. So there has been increased performance of Servelec post IPO as evidently provided by increase in:
•    Share price
•    Turnover.
•    Cash Flow from operating profit.
•    Operating cash balance.
Ratio Analysis
        (In Pounds million)    (In Pounds million)
    PARTICULARS    BOOHOO PLC    SERVELEC GROUP PLC
               
1    Asset turnover ratio    1.64    0.61
    Turnover    139.85    51.75
    Total assets    85.49    84.92
               
2    Current ratio    3.66    1.31
    Current asset    70.04    34.91
    Current liability    19.12    26.57
               
3    Basic Earnings per share    0.75    13.0
    Earnings    8.4    9
    Number of shares outstanding    11.2    0.69
 

REFERENCES

"BOOHOO Share Fundamentals (BOO) - London Stock Exchange".Londonstockexchange.com. N.p., 2016. Web. 7 June 2016.
"Boohoo.Com | Financial Statements & Reports". Hargreaves Lansdown. N.p., 2016. Web. 7 June 2016.
"SERVELEC GROUP Share Fundamentals (SERV) - London Stock Exchange". Londonstockexchange.com. N.p., 2016. Web. 7 June 2016.

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