IPO market shows where to look for growth

Corporate earnings are going to be subdued for some time but there are some sectors which still offer good growth. The new issues market is highlighting these trends.

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  1. Garry White

After a lockdown hiatus, the IPO market has returned with a bang. This week saw success for US listings in biotech and pharmaceuticals – and news is expected in the next few weeks on major flotations in cloud computing, big data and artificial intelligence. This upcoming wave of IPOs, with boards prepared to pull the trigger on a stock market listing despite an ongoing pandemic, is highlighting areas that are likely to do well whatever happens with Covid-19. Investors would be wise to take note.

Last Wednesday, Royalty Pharma became America’s biggest IPO this year. The company buys into royalty streams by co-funding late-stage clinical trials of drugs in return for future payments once they are approved. Despite the fact, the shares were priced at the top end of its indicated range and it issued more equity than initially planned, its shares soared almost 60% on their first day of trading.

Five other US biotech companies listed last week and Amwell Health, a telemedicine group that provides remote healthcare services through video calls, has filed plans to float soon. Last month it raised $194m (£153m) in a private fundraising to help it keep up with skyrocketing demand for its services during lockdown. The combination of health and remote technology means interest will be high.

Health spending to continue

The healthcare sector has outperformed the broader market significantly this year as demand for its products and services remains robust. However, the next few weeks is expected to see news of more IPOs that will highlight other areas that are likely to see good growth in a post-pandemic world – and data will be a significant theme.

Silicon Valley-based Snowflake filed confidentially for an IPO last week and should list in the coming months. The group publishes software which allows users to analyse large amounts of data stored across multiple cloud platforms, such as Amazon Web Services and Microsoft Azure.

Also in the pipeline is artificial intelligence (AI) and behavioural economics group Lemonade, which is a fintech group with big hopes of disrupting the insurance sector. The company uses data analysis and an AI chatbot called Maya to calculate insurance rates for homeowners and renters – cutting costs and saving money for insurance issuers and customers alike.

The rise of cloud-based services, which store lots of data remotely, has provided a significant opportunity for such as Lemonade to develop AI to interrogate the data sets. Indeed, this is exactly the area in which the most interesting company that is listing in the next few months operates – Palantir Technologies.

Data, data everywhere

Set up by PayPal co-founder Peter Thiel, one of Donald Trump's biggest public supporters in Silicon Valley, Palantir is expected to announce its IPO in the next couple of weeks. The highly-secretive group gathers data from public and private databases to find patterns in police reports, addresses, credit card transactions, criminal records and photos. Its contracts with enforcement officers from US Immigrations and Customs (ICE) in their search for undocumented migrants for deportation has proved particularly controversial. The group was also recently granted access to sensitive NHS data to assist in the Covid-19 pandemic, which has also prompted some concern.

In March, Palantir was enlisted to support the NHS’s pandemic response – and help build a platform to predict demand on hospitals across the country. Palantir now has access to information such as a patient’s age, address, health conditions, treatments and other personal data such as whether they smoke or drink. This is clearly a sensitive area as this type of data is a highly valuable commodity to companies targeting future profits in this area. The NHS is also sharing data with Google unit DeepMind. The government insists that any data that will make a patient personally identifiable are replaced with a pseudonym or aggregated before they’re shared with Palantir. The technology unicorn has already worked with a wide range of government agencies in the US, including the Central Intelligence Agency and the Department of Defense. It was also hired by the US Centers for Disease Control during the Covid-19 pandemic.

However, its Gotham product, which pulls all data relevant to a single person and packages it for police, intelligence and corporate security officials is likely to always be targeted by campaigners. This explains why the company has maintained a very low profile.

Data fears need to ease

Although there is a significant amount of suspicion about the use of personal data by large companies, the Covid-19 pandemic has highlighted just how useful data analytics can be. This week, China identified about 350,000 people for Coronavirus testing after interrogating phone positioning records to identify individuals who had entered the Xinfadi wholesale market in Beijing, where the latest Covid-19 outbreak started. Its usefulness is undeniable.

There is clearly a dark side to big data which must be recognised – so continuing resistance on data privacy grounds is certain. But, with the technology proving its worth during the pandemic, this could help shift the public mood. However, this is largely irrelevant as governments are already issuing contracts, with all parties insisting that the data is secure.

The companies coming to market in the next few months are therefore interesting to watch for investors seeking to identify investable sectors. Healthcare, cloud computing and AI are all hot areas because, whatever happens in the pandemic, they are still expected to grow earnings. The IPOs should act as signposts for investors to identify sectors worth a closer look.

A version of this article appeared in Friday’s Daily Telegraph.

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