2nd Dec 2022 15:52
(Alliance News) - Liberum described 2022 as a "tale of two indices", with the FTSE 100 resilient in the face of global turmoil, but the FTSE 250 succumbing to a rough year.
With just a month to go before the end of the year, the FTSE 100 has risen 2.5%, though the FTSE 250 has lost 17%.
The contrasting fortunes of London's major benchmarks typified the "two camps" investors have sat on during a tumultuous year, Liberum said.
"We expected a lot from the year 2022, yet by the end of February, it became clear that things would not turn out as planned. The Russian invasion of Ukraine together with the very hawkish pivot of central banks in the US and the UK meant that our expectations of a benign equity market and well-behaved inflation, as well as a continued recovery from the pandemic, flew out of the window," the investment bank said.
"The result was a market that was essentially divided into two camps. Investors who owned oil & gas companies were quite happy while most institutional and retail investors, who – after a decade of underperformance in the oil & gas sector – tended to be underweight, suffered significant losses and underperformance."
In a sign of the divergence between the FTSE 100 and FTSE 250, airline Wizz Air Holdings PLC - hit by the war in Ukraine - has lost 44% this year. Shell PLC and BP PLC have each risen 46%.
Liberum added: "While the FTSE 100 never even entered a bear market with a maximum drawdown during the year of 7.6% and a flat performance year-to-date, the FTSE 250 was down 29% at one point, making 2022 the third-worst year of the past two decades (only 2008 and 2020 had larger drawdowns). We are still working our way out of the hole we are in, but we are confident that in 2023 we will continue to recover lost ground."
Another big story of 2022 was a lack of initial public offerings. The IPO market was brought to a standstill, Liberum added.
While London achieved a major coup when GSK PLC spin-off Haleon PLC listed, it has been a largely quiet year for floats.
It contrasts massively with 2021, which saw Deliveroo PLC, Petershill Partners PLC, Dr Martens PLC, Oxford Nanopore Technologies Ltd and Darktrace PLC among those listing on London's Main Market.
Liberum added: "2021 had been a record year for IPO activity in the UK and the US. To say that 2022 was a rather calm year would be a massive understatement. In the UK, only two IPOs with a market cap of more than GBP100 million made it over the line. New Energy One Acquisition Company raised GBP175 million in March and Ithaca Energy launched on 18 October, raising GBP262.5 million.
"The picture in Europe would have been the same were it not for the EUR7.9 billion raised by Porsche in September. Apart from that mega-IPO, there were three companies listing with market caps of EUR500 million to EUR1 billion (all in Q1 2022) and then largely nothing. The result was the lowest IPO activity in the US, the UK and Eurozone since 2009."
Liberum noted that some IPOs planned for 2022 may have been postponed to 2023.
"Our models forecast above-average IPO activity in the US and the UK with the pickup in IPO activity particularly pronounced in the US. In the UK, we expect to see some 40 to 50 IPOs next year compared to a 10-year average of 43 per year. Only in the Eurozone do we expect weak IPO activity, which is in line with our expectation of a more protracted and deeper recession in that area than in the US or the UK," the investment bank said.
Deal-making has also declined. M&A activity has slowed after a busy 2021.
"In the first three quarters of 2022, we saw 44 deals involving an FTSE All-Share member compared to 50 deals in the same period last year. Mind you, 2021 was an exceptional year. The average number of M&A deals in the first three quarters of each year going back to 2003 is 35, so 2022 can be considered a year of above-average M&A activity in the market. Given a weak sterling and cheap valuations for many listed businesses, this is something we anticipated last year so that doesn't come as a major surprise," Liberum added.
"But while the number of deals in 2022 was relatively high, the average size of deals has shrunk dramatically. The deal volume as a share of total market cap was 0.2% in the FTSE 100, 0.3% in the FTSE 250 and 5% in the FTSE Small Cap. In 2021, 9% of FTSE 250 market cap changed hands via M&A and 5.7% of the FTSE Small Cap. In other words, even in the small cap space where we have seen most of the activity this year, the volume of deals was well below average."
Looking to 2023, Liberum expects to see a pick up in M&A and IPO activity.
By Eric Cunha; [email protected]
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