This week, Midas considers two very different stock market flotations, investment firm AJ Bell and energy efficient income trust, SEEIT.

1. AJ BELL

The average life expectancy in the UK is just under 80 years for men and just over 80 for women. It has risen by about a decade in the past half a century and is likely to continue in the same vein over the next 50 years.

As people age, they need to save more, particularly as generous company pension schemes fall by the wayside. Many are choosing to do so using investment platforms, such as AJ Bell.

Ahead of the game: The fund platform AJ Bell sponsors triathlon events

Ahead of the game: The fund platform AJ Bell sponsors triathlon events

Ahead of the game: The fund platform AJ Bell sponsors triathlon events

Co-founded by Andy Bell in 1995, the company has almost 200,000 customers, administers £46billion of investments on their behalf and has delivered average annual growth of more than 25 per cent over the past six years.

Now the group intends to float on the Stock Exchange at a price of between £1.54 and £1.66 per share, valuing the entire business at up to £675million. 

The deadline for applications is Wednesday and the flotation is primarily aimed at large institutions, although AJ Bell customers can also apply – after Bell himself went against bankers’ advice and said he wanted his clients to be eligible for the offer.

Should they go for it?

AJ Bell’s growth has been impressive. Figures for the year to September show customer numbers up 20 per cent to 198,000, revenues up 19 per cent to £89.7 million and profits up 31 per cent to £28.4 million.

The group paid a generous dividend too and intends to maintain that approach after flotation, paying out two-thirds of post-tax profits to shareholders every year.

As a business, AJ Bell differs from many competitors in that customers can either access its investment platform directly – via AJ Bell Youinvest – or through financial advisers – via AJ Bell Investcentre. This dual approach gives the business a broad spread of customers, including many relatively affluent individuals, who use AJ Bell for Self-Invested Personal Pensions, Isas and low-cost share and bond dealing accounts.

The company is also lower cost than many peers, not least because most of the 750 employees are based in Manchester, where rents and salaries are considerably lower than in London and the South East. 

Following the flotation, every employee will be given 750 shares and the opportunity to subscribe for up to £2,500 worth at the flotation price over the next year. The group already has a strong, entrepreneurial culture but this is likely to motivate staff still further.

Bell himself will be reducing his stake by just 3 per cent – from 28 to 25 per cent – and will be the largest shareholder following the flotation. Encouragingly too, his parents are subscribing for shares, alongside other friends and family. 

MIDAS VERDICT: AJ Bell operates in a growing market and it is one of the leaders in the field. The flotation is likely to be oversubscribed so the shares should rise in the short term. Bell himself is determined to make the business even more successful and believes he can do so, even if markets become more turbulent. Short-term traders will probably do well out of this flotation but the stock should deliver for the long term too.

To be traded on: Main market Contact: ajbell.co.uk or 0345 4089100 

The energy expert with a remedy for high hospital electricity bills

Health boost: The trust helps a hospital save energy

Health boost: The trust helps a hospital save energy

Health boost: The trust helps a hospital save energy

2.SEEIT

In the past few days the United Nations and the Met Office have warned of the catastrophic effects of climate change, prompting environmentalists to call for dramatic action to curb energy consumption.

Wind, solar and nuclear power are all supposed to play their part but they are not the only solutions.

In the UK alone, up to 75 per cent of the energy that we produce is lost through inefficient transmission, distribution and end use so we spend more than we have to and make more than we need.

The SDCL Energy Efficiency Income Trust – known as SEEIT – is designed to help address this issue and deliver attractive, sustainable returns to investors at the same time. SEEIT announced its intention to float on the stock market at the end of last month, hoping to raise £150million. Applications must be in by Wednesday and the shares should start trading on December 11.

They cost £1 each and are expected to deliver an initial 5 per cent dividend yield, rising to 5.5 per cent by 2021.

The trust is managed by Sustainable Development Capital, an investment firm which has set up energy efficiency programmes for a number of large organisations, including St Bartholomew’s Hospital in London, NCP car parks and Santander’s UK bank branches and offices. The firm establishes onsite energy plants, which allow users to bypass the National Grid and use energy more efficiently.

It also works on projects to reduce energy consumption, such as installing LED lighting and improving insulation.

These can have far-reaching effects, cutting annual energy consumption and electricity bills by at least 50 per cent annually.

But the upfront costs can be high so SDCL finances the projects and its customers pay a monthly or yearly fee in return – much like mobile phone payment schemes.

The contracts run for up to 20 years so the income is steady and predictable and, unlike many infrastructure funds, there is no reliance on government funding or subsidies.

SEEIT will focus on programmes that are already up and running, there is a seed portfolio of 12 such projects and a pipeline of opportunities in the UK and overseas.

The trust is managed by Jonathan Maxwell, who has worked in the sector for more than a decade and worked on the flotation of HICL, the first London listed infrastructure fund, whose value has risen more than ten-fold over the past 12 years.

MIDAS VERDICT: The energy efficiency market may seem niche but it is growing rapidly and projects can be costly and extensive – Santander’s move to LED cost £17.5 million and involved 90,000 new lights, for example. As a pioneer in this market, SEEIT is well placed to satisfy growing demand and deliver rewards to shareholders. A feel-good investment.

To be traded on: Main market Ticker: SEIT Contact: sdcleeit.com or 020 7287 7700

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