Should investors dodge the curse of celebrity stock market floats?

A wave of celebrity and trend-setting company flotations is about to hit Wall Street, fuelling the debate about the City being left in the cold. 

Among the stars heading for a listing in the US is influencer and reality TV star Kim Kardashian. Her Skims clothing brand is thought to be on the verge of going public and is expected to hit a valuation of $4 billion (£3.2 billion).

There are hopes its founder’s star power and sizeable social media following will encourage more firms to follow and launch initial public offerings in New York.

The frothy mood in the US contrasts with the gloom in the Square Mile. The UK stock market is trading at the biggest discount on record, according to investment bank Panmure Gordon. This means the value of the shares measured against the profits the firms are generating is at a historic low.

The low valuations that British firms can expect if they list in London compared to New York is fuelling fears that more will shun the City in favour of Wall Street.

Floating: Among the stars heading for a listing in the US is influencer and reality TV star Kim Kardashian

Other firms lining up for a market debut in America include Birkenstock. The fashionable sandal company saw a rise in sales after actress Margot Robbie wore a pair in the summer smash hit movie Barbie.

Canned water firm Liquid Death, popular with style-conscious younger consumers and described by the Washington Post as ‘the emperor’s new water’ is also thought to be planning a float in the US.

So too is Reddit, a network of online communities. During the pandemic, Reddit users sent up the price of a number of US shares including GameStop, a computer games retailer. Those who bought at the top were left with big losses. Some fear the same could happen with the next crop of flotations on the tech-heavy US Nasdaq market.

Executives at Nasdaq – which has raised £4.3 billion in funding through the listing of 83 companies so far this year – are rubbing their hands at the prospect of hip, celebrity-endorsed floats.

The London stock market, by contrast, has drummed up £940 million from 20 floats to date in 2023.

Calls have grown for the Square Mile to do more to attract public companies after a series of high profile corporate defections to the US, including building material supplier CRH, which owns Tarmac.

However, some observers argue the UK’s robust regulation is helping British investors dodge bullets that could be about to blow holes in the portfolios of their US counterparts.

‘London’s regulation protects investors and ensures companies meet high standards of governance,’ said Russ Mould, investment director at stockbroker AJ Bell.

He added that the bulk of US listings had been ‘top-of-the-market-style duds’ and that British investors ‘have swerved losses.’ 

Mould also cautioned investors against buying into firms backed by celebrities and popular brands. ‘Hype is the enemy of the investor,’ he said. Investors seduced by the idea of celebrity shares should be mindful of the records of famous faces such as David Beckham.

The former footballer has supported several smaller firms, including e-sports group Guild and Cellular Goods, a maker of skincare and wellness products infused with chemicals from cannabis plants.

Hitting the wrong note: In 2021, rapper Snoop Dogg backed cannabis research firm Oxford Cannabinoid Technologies

Both proved massive flops, with shares in Guild currently changing hands at 92 per cent below their listing price, while Cellular’s stock has collapsed 84 per cent.

California rapper Snoop Dogg in 2021 backed cannabis research firm Oxford Cannabinoid Technologies, whose London-listed shares are currently 74 per cent below their listing price.

‘It seems every celebrity is trying to jump on the bandwagon now,’ said Michael Field, market strategist at Morningstar, a financial research firm. He added that many of these companies ‘will be fads’ designed to offer founders and others ‘a quick way to cash out’.

There are also ethical concerns around some of those looking to float in New York. Chinese fashion giant Shein, whose low cost garments are heavily touted online, has been in talks with banks about a potential US listing and was recently valued at more than £47 billion ($60 billion). But it is embroiled in a major controversy about its use of sweatshops, having previously faced accusations of trying to whitewash its labour practices using online influencers.

Experts point out that attracting flotations is not in itself cause for celebration but depends on their quality. In June, Turkish chemical giant We Soda, a producer of soda ash used in glass manufacturing, detergents and soaps, cancelled its planned float in London complaining that the market had valued it at ‘unrealistically low’ levels.

It later emerged that potential backers had been put off by several warning signs, including We Soda’s demands for a high valuation and the fact that chairwoman Didem Ciner is the 43-year-old wife of the company’s current owner, Turkish billionaire Turgay Ciner, 67.

Investment manager Justin Urquhart-Stewart said regulators must not allow the London market to become dominated by ‘dodgy’ listings. He added aspiring firms looking to list should have ‘solid and properly structured businesses’ and not become beholden to ‘fads’.

This post first appeared on Dailymail.co.uk