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Taking stock: so are the streets of London really paved with gold?

Drinks company C&C is the latest Irish-listed firm to flee the Dublin market for London. What does this bode for the Irish equity market, asks Dan White


Increasingly globalised markets mean it is a 'no-brainer' for major Irish firms to switch their listing away from the Irish Stock Exchange and head for London

Increasingly globalised markets mean it is a 'no-brainer' for major Irish firms to switch their listing away from the Irish Stock Exchange and head for London

Increasingly globalised markets mean it is a 'no-brainer' for major Irish firms to switch their listing away from the Irish Stock Exchange and head for London

C&C has joined a slew of major companies which have made the switch to the London Stock Exchange. First out of the traps was convenience foods manufacturer Greencore, which cancelled its Irish listing and moved to London in March 2012. It was followed by pharmaceutical services company UDG (formerly United Drug) in October of the same year. Builders' merchanting and DIY company Grafton and distribution group DCC moved their listings to London the following year.

Such listing-switching was and remains a sensitive subject. None of the companies we contacted was prepared to be quoted on the record.

Now C&C is set to join the financial exiles. Last Tuesday it confirmed it was moving its listing to London and cancelling its Dublin listing on October 7. With the prospect of a no-deal Brexit in less than seven weeks, why is C&C making the switch now?

C&C chairman Stewart Gilliland offered three main reasons. Firstly, following its 2018 acquisition of UK drinks distributors Matthew Clark and Bibendum, almost 80pc of C&C's sales are now in the UK. Secondly, the majority of C&C's shareholders are now based in the UK or North America. Thirdly, by moving its listing to London, C&C hopes to be included in the FTSE UK share price indices, making its shares more attractive to institutional investors.

However, despite moving its listing to London, C&C's head office will remain in Ireland and it will continue to report its results and pay dividends in euro - don't bet on this situation continuing indefinitely as DCC and Greencore now report their results in sterling while UDG reports in US dollars.

In addition to some companies moving the whole kit and kaboodle to London, a number of other Irish companies have moved their primary listings to London while maintaining a secondary listing in Dublin. CRH, Ireland's largest company, moved its primary listing to London in 2011 while paper and packaging company Smurfit Kappa did so in 2016. The CRH decision to move its primary listing came after a lot of soul-searching, with then chairman Kieran McGowan being very anxious not be seen to be "pulling the rug" from under the Irish Stock Exchange at a time when the Irish economy was on its knees.

Which, of course begs, the question: Why couldn't the likes of Greencore, UDG, Grafton and DCC also have retained a secondary Dublin listing? The C&C announcement provides a clue. Basically, by the time they switched their main listings across the water, the vast majority of the trading in CRH and Smurfit shares was already taking place in London. Not C&C.

"The FTSE rules governing eligibility for its UK Index Series require… that the majority of C&C's shares are traded on UK markets. Currently, the majority of C&C's shares are traded on Euronext Dublin [as the Irish Stock Exchange is now officially known]. Cancelling the group's Irish listing is therefore necessary to ensure C&C's eligibility for the FTSE UK Index Series."

The fact most of the trading in its shares already takes place in London is probably the main reason why Flutter (formerly Paddy Power Betfair) hasn't pulled down the shutters on its Dublin listing. Company sources are adamant it has no plans to follow C&C's example.

Not alone have several Irish companies either moved their primary listings or switched listings entirely in recent years. The banks, long the mainstay of the Dublin market, have shrivelled to a fraction of their former size.

Even after massive taxpayer-bailouts and AIB and Permanent TSB IPOs, the three surviving Irish banks have a combined value of just €12.2bn, down by almost three-quarters from their 2007 peak of over €45bn.

C&C's defection comes less than two years after Euronext, which also owns the Amsterdam and Paris bourses, agreed to pay €137m for the Irish Stock Exchange. Have the new owners been sold a pup as Irish-listed companies flee Dublin for London?

That's not how they see things on Anglesea Street. Irish Stock Exchange sources point out that such listings migration is not unusual and that something similar happened the last time equity markets were close to a peak. They view it as part of the normal cycle and not as something to be overly concerned about.

In addition, while the timing may have been completely coincidental, Euronext Dublin launched its third IPOready programme on September 5. This is aimed at high-growth companies exploring fundraising options up to and including an IPO (initial public offering). This is up from the 12 companies who took part in last year's IPOready programme.

Will faraway fields prove to be greener when C&C shares begin trading exclusively in London next month? How have the shares of the other financial exiles fared since their moves?

The switch certainly seems to have paid off for Greencore. Its shares were trading in London at 230p last Friday, more than four times what they were changing hands for before it announced its decision to transfer its listing. The UDG share price has also nearly quadrupled since revealing its decision to switch.

Moving to London has also been good news for DCC, with its share price more than tripling in value since the switch. The jury is still out on the Grafton move, however. Its share price was trading at 760p last Friday, up just under a third from when it announced the move. Over the same period the ISEQ index of Irish shares have risen by almost 40pc.

Based on these numbers it's hard to see why Grafton bothered to make the switch.

The share prices of companies such as CRH and Smurfit Kappa, which moved their primary listings to London but retained secondary Irish listings, also seem to have done well since making their move.

The CRH share price was trading at about €12.70 before it made the announcement that it was switching its primary listing on November 8, 2011. It was trading at €32.39 last Friday. For a company of CRH's size, increasing its share price by 155pc in the space of less than eight years represents an enormous increase in shareholder value.

While we will never know how much of this increase was due to the decision to switch its primary listing to London, which allowed CRH shares to be included in the all-important FTSE 100 index - DCC and Smurfit Kappa have also since been admitted to this exclusive club - it certainly helped.

Shares in the other dual-listed Irish company, Smurfit Kappa, have also apparently done well since opting for bi-location. It announced that it was making the move in March 2016 at which time the shares were trading at just over €21. By last Friday they were trading at €29.80, an increase of 40pc.

But, as all Smurfit Kappa shareholders are only too aware, the shares should have done even better.

Last year Smurfit Kappa rejected an offer worth almost €40 a share from US packaging giant International Paper. Given the recent uncertainty in global equity markets, it might be a while before the Smurfit Kappa share price touches those levels once again.

So what are the implications for the Irish market of companies switching either their main or sole listing to London? Is this a good thing, a bad thing, or does it make any difference at all?

The timing was purely coincidental, but the C&C announcement came in the same week it emerged the Hong Kong Stock Exchange had made an unsolicited £32bn offer for the London Stock Exchange (LSE).

This latest approach comes just two-and-a-half years after EU Competition Commissioner Margrethe Vestager blocked a proposed £21bn merger between the LSE and the Deutsche Bourse on the grounds it would create a "de facto monopoly in the crucial area of fixed income instruments".

Meanwhile, in addition to the Dublin, Paris and Amsterdam markets, Euronext has also gobbled up the Brussels and Lisbon exchanges.

To survive, the smaller exchanges, including Dublin, have been diversifying away from equities trading.

In 2017, the last full year before the Euronext takeover, equities worth €98bn and government bonds worth €171bn were traded on the Irish Stock Exchange.

Over the same period almost 10,400 new debt securities and 917 new funds were listed on the Dublin market.

It is from these new businesses, not traditional share and bond trading, that Euronext Dublin now largely earns its crust.

As the smaller markets specialise in specialist niches and equity trading migrates to the bigger markets, is the importance of national equity markets declining?

"Back in the day the Irish Stock Exchange was an important part of the financial landscape," says one veteran of a number of listing switches. "Now it is an absolute no-brainer for major international companies to move their primary listing to London.

"Analysis has changed, broking has changed, the exchanges themselves have changed. The markets have become globalised. The days of national bourses are numbered."

Sunday Indo Business