With memories of Deliveroo’s Initial Public Offering flop still alive in the City, investors may approach Wise’s long-awaited London listing with caution.
Wise has become somewhat of a darling in the fintech world and has attracted investment from the likes of Silicon Valley Bank and Sir Richard Branson.
The payments app, which was recently rebranded from Transferwise, launched in 2011 by Estonian Kristo Kaarmann and Taavet Hinrikus.
Since then, it has expanded its offering from its core money transfer services to a multi-currency account.
Wise move? An IPO can be a difficult day to predict for everyday investors
Wise now boasts 10million customers and processes £5billion worth of transactions every single month.
There had been speculation Wise could list in the US, following in the footsteps of other British success stories such as electric car company Arrival and Alex Chesterman’s used car firm Cazoo.
The decision to float in London via a direct listing will be warmly welcomed by the Government which has gone on a charm offensive to lure companies to list in the capital.
Others that have listed this year include cyber security provider Darktrace, chip designer Alphawave IP and takeaway app Deliveroo.
Is Wise’s valuation too high?
Wise was last privately valued at $5bn in a secondary share sale last summer, but because the company has opted for a direct listing there won’t be a share pricing process as with normal IPOs.
The shares will receive a reference price, an estimated value from the stock exchange, rather than a fixed IPO price.
It is reportedly targeting a valuation of between £5billion and £9billion, Sky News reported, making it one of the most valuable British startups in a decade.
But after Deliveroo’s disastrous debut in March, which saw its share price plunge 26 per cent on its first day, investors will no doubt be cautious.
‘Investors will want to know why the valuation has gone up so much in the past few months, especially as the firm is not raising money and the listing will give the company’s early backers a chance to sell some of their holdings and book a profit,’ says Russ Mould, investment director at AJ Bell.
How to invest
Wise is launching its own shareholder programme called OneWise, which has already opened for pre-applications.
Up to 100,000 customers can buy shares and, if they hold them for 12 months, they will receive bonus shares representing 5 per cent of the value of their existing stake, up to £100.
Once Wise goes public, investors can buy shares through trading platforms.
It will come down to Wise’s investment case but, unlike Deliveroo, the payments app has a strong track record.
While other payment firms have reported deepening losses as they spend on new products and overseas expansion, Wise has booked profits for four consecutive years, reaching £421million of revenue in FY2021.
Even with this solid foundation, Neil Wilson, chief markets analyst at Markets.com, is not sure Wise will convince the market to invest at such a lofty valuation.
‘Wise seems a good business, I just don’t know if in the current market investors are willing to pay up at this kind of valuation.
‘I don’t think the London market is that able or willing to provide this kind of liquidity.’
Mould adds: ‘Even good companies can be bad investments if you pay too high a price for them, as that crimps your upside potential and leaves you with less downside protection should anything untoward happen.’
Additionally, it is unclear whether institutional investors are on side yet, which will prove essential if Wise are to have a successful debut.
‘As we saw with Deliveroo this was the biggest problem, as there was no “buyer of last resort” that was willing to take on more as the share price fell, thus stabilising it,’ Wilson adds.
What should retail investors consider before investing?
For investors thinking this might be a wise investment, there are a number of factors to consider.
Wise is going public via a direct listing like Deliveroo, which means unlike a standard IPO it will not need to raise any capital, but means shares held by existing shareholders will become tradable.
‘The problem with a direct listing is that no one really knows the fair value so lots of people would likely wait and see how the first day goes before thinking of getting in,’ Wilson says.
The lack of associated fundraising and pre-marketing to attract institutional investors means the share price is not set at the time of trading.
‘It’s riskier and I would think New York is a better place for this kind of thing, but in a way it is good to see London getting a piece of this.’
Wise says a direct listing is a ‘fairer, cheaper and more transparent way for Wise to broaden its ownership’.
It plans to launch a customer shareholder programme, OwnWise, which would let users own a stake in the company.
Customers participating in the scheme would be entitled to receive bonus shares of up to a maximum of £100 after 12 months.
Investors should consider how aligned their interests are with that of management before snapping up shares.
Wise is expected to adopt a dual class share structure which does away with the traditional ‘one share, one vote’ system.
It gives greater control to management and makes it harder for shareholders to hold them to account.
Indeed a number of institutional investors, including Aberdeen Standard Investments and LGIM, turned their back on Deliveroo citing concerns about this kind of structure.
Even if Wise debuts at the lower end of the valuation estimates, it will still need to justify this lofty valuation.
If successful it may well convince investors Deliveroo was merely a blip and not the start of a worrying trend for tech listings in London.
Five most recent IPOs
Made.com: The furniture retailer made its debut on the London Stock Exchange this week but its shares sunk 7 per cent at points from its 200p opening price.
Alphawave: The Canadian semiconductor firm’s shares plunged 21 per cent on its first day, shrinking its value by approximately £600m. It is now trading 5 per cent lower than its debut price.
Trellus Health: The health company’s shares rose as much as 58 per cent to around 60p per share on its debut, off the back of increased interest in the sector. It is now trading just over 70p per share.
Bellluscura: The medical device developer saw its shares rise nearly 30 per cent on its opening day last month to around 54p per share, and has stayed at that level since.
Dianomi: The digital ad firm’s shares soared on its debut last month to more than 330p per share, and has since settled to just under 320p.
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