The UK equity market has proved remarkably resilient in light of the headwinds during Q1; the results season has been fairly robust and the valuation of the market remains compelling versus other asset classes.  The main question now is how the companies can utilise these strong balance sheets in the most efficient fashion.

I genuinely believe good companies will be able to use their cash in a robust way which will allow operational gearing to come to the fore and enable these companies to trade on superior multiples to their peers.  We are beginning to see strong signs of growth capital being deployed but also there is ongoing M&A activity which is also underpinning the market currently.

That said, the IPO market continues to struggle in the UK compared to the strong performance we are seeing in the US and indeed Europe and I believe there are a couple of main reasons for this

1. There are a lot of asset allocators who have switched out of UK equities into global equities and thus there isn’t a “normal” pool of capital available
2. The IPOs have come relatively late in the investment cycle.  We are just over two years into the recovery and as such ‘the risk trade’ is less compelling; investors are therefore perhaps more inclined to support the companies they really believe in and truly understand rather than simply investing in the latest new stock.

There have been a number of IPOs where the underlying businesses have been good, but the vendor and their advisers have been asking just too high a price and this has caused real issues between investors and sellers of the business. 

Indeed, I would go as far as to say that there are far too many advisers attached to each individual IPO, meaning that a robust discussion can not happen. This is definitely to the detriment of the company concerned.  Some new companies would be nice though!