COMPANIES floating on the stock exchange are failing to exploit today's technology to open up share offers to the public, the UK's biggest broker says on today's anniversary of the Royal Mail flotation.
A survey by Hargreaves Lansdown says 93 per cent of individual public offers (IPOs) this year have not been offered to the public, yet investors in consumer brands - including the battered supermarkets - are far more likely to be loyal customers.
When Royal Mail floated a year ago, the price was set at 330p, and the shares jumped 38 per cent to 455p on the first day of trading.
They subsequently peaked at 615p in mid-January, but in July slipped below the first-day price and have since fallen to below 400p.
"IPOs are vital to encourage first-time investors," says Richard Hunter, head of equities at Hargreaves Lansdown.
"Investing is good for them and for the economy as a whole. Investing from an early age will help put people on the right path to financial security.
"Shareholders also make for more loyal customers."
Of those who bought into Royal Mail via HL, for 28 per cent it was their first stock market investment, and for a third it was their first investment for five years or more.
Three-quarters of under-40s who subscribed say they are likely to invest in future IPOs.
However, Virgin Money has now announced its intention to proceed with a £2billion flotation, with the opening day shares only offered to institutional UK and overseas investors.
It means private UK investors will not be able to apply for shares at what is often a favourable issue price, or be attracted to another IPO opportunity.
Mr Hunter says: "It is disappointing that Virgin have chosen to exclude private investors, particularly given the ubiquity of its brand and the nature of its business.
"Given the relatively small amount being raised, in terms of convenience and speed to market this may be the prudent financial choice for Virgin Money."
But he added: "The Government has recognised the importance of including the public in the IPOs of Direct Line, Royal Mail and TSB.
"It is therefore so disappointing that in the recent spate of IPOs, companies have not taken advantage of the technology now available to open up their offerings to the public.
"Many of them are probably still labouring under the misconception that it is still a more arduous task to do so."
The broker's survey found that people who hold the shares of big supermarkets, insurers and energy companies are more likely to be loyal customers.
For instance , 17 per cent of HL clients who hold Ocado shares are also customers compared with 3 per cent who shop with Ocado, but don't own any shares.
Similarly, Direct Line shareholders were twice as likely to use their services as non-shareholders (28 per cent to 14 per cent), with eSure it was 12 per cent against 5 per cent, Aviva 47 per cent against 27 per cent, SSE 28 per cent against 11 per cent and British Gas 30 per cent compared with 22 per cent.
Shareholders in the big three food retailers were also more likely to shop there than non-shareholders, with 70 per cent of Sainsbury's investors and 84% of Tesco's shareholders also being customers.
Mr Hunter said: "Shareholders in three of the four largest supermarkets are 43 per cent more likely to use the company's products or services."
But investor loyalty has been tested in recent times, with the supermarket wars seeing Tesco shares fall by 50 per cent and Sainsbury's by 40 per cent in the past 12 months.
Andrew Herberts at Thomas Miller Investment commented: "In order to remain competitive, Tesco, Morrisons and Sainsburys will need to develop a strategy that blunts the attraction of the discounters, exploits their own advantages in terms of consumer choice and may involve imaginative uses of the space in their vast out-of-town hypermarkets."
He said the market appeared to be expecting "a period of value destruction" and there was therefore "no reason why the stocks could not fall further".
Hargreaves warned that when an IPO does reach out to investors, "don't use a blunderbuss approach - not every company is worth investing in, so make sure that you do your research beforehand".
You should consider applying within an Isa or Sipp tax wrapper, and check the costs of application and holding the shares.
Many brokers do not charge for buying them for you in an IPO.
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