Flotation fever is a dangerous condition, and the bout experienced in early 2021, we can now say, was severe. The cohort of stock market arrivals included Made.com (down 100% from its float price), Deliveroo (off 77%) and Dr Martens (47% lower). Now comes Moonpig. Floated at 350p, the online gifts and greetings cards retailer sits at 138p after Wednesday’s half-year update, which brought a revision to full-year in revenue forecasts from £350m to £320m
Moonpig seems reliably profitable – as Dr Martens is. One could even call the business model clever. The cards are printed only when the customer orders, which is terrific for cashflow, and the add-on gifts are a margin-enhancing opportunity to sell to a self-selecting audience.
It’s just that a £1.2bn price-tag at listing in February last year was plainly far too much. Yes, Moonpig can say it is “leveraging data and technology” with its ability to remind loyal punters that their great-aunt’s birthday is approaching, so best to get in quick before the next Royal Mail strike. But highly prized tech firms are not usually in the business of flogging chocolates, flowers and personalised mugs. The valuation ought to reflect as much.
Moonpig’s management has done nothing wrong, it should be said. Before Wednesday, they had upgraded on revenues a few times as a public company and, even now, expectations for operating profits haven’t changed much. There is also a fair argument that an ability to dial the marketing budget up or down, according to conditions, provides a degree of resilience. The beef is solely about the original over-the-top float price.
What were the fund managers smoking as the UK came out of lockdown? After buying too many businesses from private equity at inflated multiples over the years, you’d think they would have learned to deploy a little scepticism. Instead, they seem to have swallowed whole the notion that the Covid online whoosh would last for ever and thus traditional valuation yardsticks could be ignored. Some of these people, unfortunately, manage pensions.
Hard to swallow why markets panicked over Zantac
It’s too soon to say the great Zantac panic – the one that clobbered GlaxoSmithKline’s share price in the summer – is definitively over. Other US courts are scheduled to consider plaintiffs’ claims that a heartburn drug from the 1980s caused their cancer; and appeals can always happen. But the federal case in Florida, all sides agreed, was the big one. From the point of view of GSK and other pharma companies that had held the rights to Zantac over the decades, the verdict could not have been better.
As Redburn’s analysts put it: “There are victories … and then there is this.” Over 330 pages, Judge Robin Rosenberg dismissed thousands of claims in crystal-clear terms. Here’s a flavour: the plaintiffs scientists “utilised unreliable methodologies”, didn’t substantiate “analytical leaps”, had “a lack of internally consistent, objective, science-based standards for the even-handed evaluation of data”.
Naturally, GSK’s rose 13%, while Sanofi, the French pharma firm that acquired a company that sold Zantac, was up 7%. Haleon, the FTSE 100 consumer products firm that GSK demerged in July, rose 8% and is almost back at its original value.
It’s worth asking, then, why stock market investors worked themselves into such a frenzy over Zantac in the first place. The weirdness was that share prices almost seemed to imply that the pharma companies had already lost. GSK’s share fell 15% over two days in August when there was no other news around. Across the theoretically exposed companies, the decline in stock market value was about £30bn.
Why such a sudden drop? And, why did it happen even though the existence of the litigation was already known and had been explicitly detailed by GSK in its Haleon demerger prospectus? The short answer, strange as it sounds, is that a single note from a Morgan Stanley analyst seems to have triggered the scare by theorising about a “possible range” of $10.5bn to $45bn for total Zantac liabilities across the pharma industry.
Anything is “possible” in the US legal system, of course, but a $45bn payout for a drug that had been approved by regulators in many jurisdictions always felt like a very extreme scenario. After the Florida verdict, the litigation overhang now looks “eminently manageable”, in the view of Deutsche Bank’s analysts. File this episode as another instance of inefficient markets.