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When the share price of a UK company falls, just blame the London market.
Increasingly, companies or their investors are citing poor trading liquidity, or a supposedly widening valuation gap, compared to their U.S. counterparts due to poor stock performance. The London market is not at its best. But it also cannot be the scapegoat for all the UK's corporate problems.
Activist investor Sparta Capital Management is calling on London-listed Wood Group to consider a US listing to address the “continued weak performance of its shares”. He points to “recent successful attempts by companies to move their core listings away from markets where…they do not realize the true value of their business.”
This is fake. The wood is not CRH or flutter. It is a small FTSE 250 engineering company, which is midway through another turnaround after its disastrous £2.2bn takeover of Amec Foster Wheeler in 2017, which left it with debt and legal obligations. Her problems are self-inflicted. It's not clear why US investors would be more willing to buy shares until a company shows it can generate sustainable positive free cash flow.
You can't blame Sparta for incitement. Wood's shares are sitting at around 142p – a painful 41 per cent below the final takeover price offered by Apollo a year ago before the private equity group backed out. Frankly, Wood's share price looked high at 240p at the time. At some point between 240 pennies and Apollo's opening gambit of 200 pennies, the deal was supposed to happen.
But a NYSE listing would do little to solve Wood's problems. Given its market capitalization of £971m, it is not clear what US index it will fall into.
All efforts must be directed towards trying to repair Wood's damaged reputation, after years of over-promising and under-delivering. It has a new CEO in the form of the highly respected Ken Gilmartin. But investors have long memories, says Mark Wilson, a Jefferies analyst. The latest turnaround effort comes with a cash impact of $50 million that will delay achieving positive organic free cash flow by a year, until 2025. In 2023, this was $265 million, an improvement from $704 million the previous year.
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You can imagine the excitement on Wall Street as this mid-cap cash stream emerges. Sparta, which also wants a review to consider a sale, may fare better with bidders. But there is little reason to believe a deal will be reached now, after interest faltered last year.
The London market has its difficulties. But false narratives are an unhelpful distraction in trying to address it.
nathalie.thomas@ft.com
Lex is FT's shorthand daily investing column. Expert writers in four global financial centers provide informed and timely opinions on capital trends and major companies. Click to explore