Companies head west in search of better life

Like modern-day Pilgrims, dissatisfied with the failures of a Britain they consider beyond redemption, more and more companies are heading West across the Atlantic in search of a better life. Or, at the very least, a more attractive earnings multiple. In the past week alone, building materials company CRH announced it would move its primary listing to the US and Cambridge-based chip designer Arm decided New York is a more suitable venue for its imminent IPO. Other UK-listed giants like Flutter and Shell have said they’re considering similar moves.

It is understandable why these companies would look to set sail from UK shores. Panmure Gordon’s chief economist Simon French estimates that UK-listed shares trade at a 15-25% discount to their global equivalent peers. A cocktail of Brexit, diminishing liquidity, and investors reallocating assets has diminished the UK’s standing.

For those of us left behind on this windswept island, though, there are some crumbs of comfort. While losing primary listings to our Yankee cousins might dent national pride, it needn’t reduce the opportunity to profit. In February 2020 plumbing and heating-products distributor Ferguson announced an assessment of its listing structure, with the view to a primary listing in the USA. Since then it has successfully made that transition and now only has a secondary listing in London. Over that period Ferguson’s stock has appreciated by 74%, a position that would comfortably place it in the top decile of FTSE 350 companies if it were still eligible for index inclusion. While most of the trading volume is now conducted in the US, there is still £40-50m traded per day in the UK – sufficient liquidity for agile fund managers.

It is for this very reason we were exceedingly relaxed, if not delighted, when CRH, a 4% holding in the SVM UK Opportunities fund, announced its move. The stock has persistently traded at a marked discount to US peers, despite North America accounting for c.75% of EBITDA. Even a partial closing of that gap would result in material upside for investors. “If you can’t beat ‘em join ‘em”, as they say across the pond….all aboard the Mayflower!

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