Peel Hunt’s profits have been almost entirely wiped out after the savage drop in company flotations and other equity raising activity in 2022.
The mid-cap broker said equity market activity had fallen to “a multi-decade low” this year and that the short-term outlook remained “challenging” for 2023.
The company made just £100,000 in pre-tax profits in the six months to the end of September, down from £29.5mn in the same period last year. Group revenue fell to £41.1mn in the first half of its financial year, down from £71.4mn a year earlier.
Many boards shelved plans for initial public offerings this year as investors pulled back from backing new companies on the stock market given the wider economic and political turmoil.
In the first six months of 2022 there were only five UK IPOs, compared with 37 in the equivalent period in 2021, while there were 97 equity-raising deals worth £7.9bn across the whole market, compared with 257 deals raising £28.5bn the year before.
Advisers believe the equity market freeze will continue into the new year, with few expecting a bounceback in fundraising until after the summer.
Peel Hunt shares fell 6 per cent on Thursday morning, valuing the company at about £96mn, which almost exactly matches the level of net assets on its balance sheet.
Chief executive Steven Fine said the “macroeconomic and geopolitical backdrop has continued to have an adverse impact on markets and investor sentiment”.
He said the fall in equity capital markets activity was due to several factors “including investor redemptions, institutional investors building up cash positions and retail investors being more cautious as equity markets responded to rising inflation, the cost of living crisis and the possibility of a lengthy UK recession”.
Fine added that a return to a “normalised interest rate environment has inevitably created short-term challenges”, but that it could also present a number of medium-term opportunities.
“Whilst we expect that private capital will continue to be a valuable source of funding for UK companies, a repricing of debt should drive a resurgence in public equity finance.”
He also pointed to efforts by the Treasury, the Financial Conduct Authority and the London Stock Exchange to push through reforms to improve the UK’s equity markets. Several changes have already been made to encourage new companies to list in the UK, including on dual class share structures and loosening the free-float restrictions.
Peel Hunt said it continued to build a private capital markets capability given the slump in public market activity, as well as investing in its M&A advisory business.
The company has also been in talks with rivals such as Numis about bringing in new partners for its retail capital markets platform Rex, which could then be separated as a standalone operation.
Peel Hunt also said that it expected regulatory approval during the first half of 2023 for its Copenhagen office to serve clients in Europe.