There was a certain sense of deja vu in the City last month as Darktrace’s shares plunged.

The FTSE 100 tech group – one of Britain’s largest – has become the latest victim of debutant volatility, its shares dropping sharply in a series of double-figure falls across recent weeks.

The catalyst was brokers at Peel Hunt initiating coverage with a heavily downbeat stance, recommending clients sell and suggesting Darktrace’s shares were worth half of its then-price of 945p.

Peel Hunt analysts stuck to their guns in a follow-up note last week, describing a “disconnect between the valuation and the revenue opportunity”.

Darktrace’s wobbles shine a spotlight on the sour state of London listings, where a strong year for new arrivals – roughly £15bn has been raised across 92 initial public offerings, according to Dealogic – has bred few winners.

Markets are nervous, having been stung by recent market volatility sparked by the pandemic, and the high-profile collapses of fool’s-gold companies including German payments company Wirecard and former London blue-chip NMC Health. Once-bitten investors have learned to pay attention when analysts start speaking up.

Despite Darktrace’s troubled performance, the cyber security company remains the stand-out performer among London’s new entrants. The Cambridge-based company soared 30pc at its debut, giving it a market cap of £2.2bn.

Almost 140 days after debuting, its shares are trading hands for about two-and-a-half times their initial value, having nearly tripled in price at one point. Despite recent drops, it’s valued at £4.2bn.

Private equity firm Bridgepoint is another that can claim success, up about 50pc from its July float and now with a market cap of £4.3bn.

Floats that sank

But all other high-profile 2021 listings – including shoemaker Dr Martens, card company Moonpig and online furniture retail Made.com – are virtually flat or below pre-pandemic levels. That comes despite a broad rally in stocks underpinned by a global economic recovery that has pushed the FTSE All-Share up 13pc so far this year.

Floating Companies – This year’s top London floats

Even payments group Wise, which became London’s biggest-ever tech listing with an £8bn valuation in July, is down about 11pc – despite having been profitable since 2017.

A fund manager who put the same amount into each company at its debut would be sitting on an average total gain of about 5pc – nothing to write to investors about – and most of that would be down to Darktrace.

Overshadowing the scene is THG, formerly The Hut Group. The ill-fated health and beauty retailer came to market in September 2020 feted for its tech chops, and popped higher despite City inhibitions over its unusual share structure which gave founder Matthew Moulding a veto on takeover efforts.

More than a year on, THG shares are about 60pc cheaper amid questions about its operations. The company has been forced to unveil governance changes that include Moulding vowing to ditch his ‘golden share’.

Another problem, say City insiders, is that London didn’t have the depth of expertise to analyse a stock billed as a part-conventional web retailer, part burgeoning tech company – its unit Ingenuity helps other companies develop e-commerce operations.

THG divisions' percentage share of sales

To pull off successful tech floats, London needs a solid base of analysts able to thoroughly research and guide investors, particularly when they are putting money into companies with huge growth ambitions but eye-watering losses. But there is also less incentive for brokerages to grow their tech expertise when so few companies are coming to market.

Similarly to THG, issues over founders’ governance also cropped up during Deliveroo’s disastrous debut in late March. 

Widely thought of as overpriced, the eight-year-old group targeted a valuation of £7.6bn despite pushback from fund managers over an unusual dual-class share structure that handed outsized power to founder and chief executive Will Shu.

It closed its first day down 26pc – labelled “the worst IPO in London’s history” by one of its own bankers. Just over seven months later, it is still about 30pc below its float price.

James Thorne, a fund manager at Columbia Threadneedle, said the highly wrought structure of many modern IPOs, which take months to come to market, can make it hard to manage expectations. When multiple banks are involved in running the books or anchoring a float, nobody wants to be the bearer of bad news.

“Whereas at the bottom end of the market there’s one adviser, at the top end of the market the larger deals are five or six advisers.

“So to try and get them all around the table and go ‘look, the markets moved, we have to have a realistic and frank conversation with our clients to say this valuation is just going to be too high’, it’s very, very difficult,” he says.

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Meanwhile, the pandemic has burnished the accounts of online operators boosted by lockdown, making it hard to get a clear sense of their prospects.

“It is very, very difficult,” says one veteran analyst. “And some of the market price responses we’ve seen to these equities is as much a reflection of that difficulty as it is of a logical, measured appraisal of how a company is performing or not.”

“The market is a bit like a person swimming in a swimming pool, trying to put their feet on the bottom, and they can’t.”

London or New York?

Now there is danger that the lacklustre performance of many recent floats will have a cooling effect on the market, leading companies to either delay flotation or seek a different staging post as they go public.

Despite these wobbles, London looks set to remain a relatively hot listing destination over the coming months.

Floating Companies – rush of new listings

“I think what we would be concerned about is if companies were coming to market, performance was mixed, and as a result that was holding people back and putting people off, both on the investor side and on the issuer side,” says Paul Leech, co-head of global equities at Barclays.

“But, in actual fact we’re seeing the opposite of that, we still see a very healthy pipeline right into next year.”

Potential heavyweights – including fintech darlings Revolut and Monzo – wait in the wings, though some carry the same warning signs that seem to have turned investors off recent tech entrants. Both would seek multi-billion valuations, with a July funding round suggesting Revolut is worth £24bn.

Still, volumes pale compared with the United States, where it is not uncommon to see several market debuts on any given day. It creates a double-edged sword for companies mulling which city to list in: go for London and expect a high-profile float – with the scrutiny that entails – or join the crowd on Wall Street.

“Do you want to be front-page of the papers and be in the game or would you rather hide away on page 25 and do it quietly?,” describes one City source.

For years, investors have called for an influx of tech stocks to put a shot in the arm of London’s top indices, which have long been tepid in that regard. As of yet, they haven’t been rewarded.

Maybe their sights are just set too high. “There are lots of really good companies that come to the UK market quite quietly,” says Thorne. “And no one ever talks to them.”