Shawbrook’s Planned IPO Raises Questions About Fintech Valuations in London

Shawbrook’s Landmark London Listing

Digital lender Shawbrook is reportedly preparing for one of the London Stock Exchange’s most significant initial public offerings in years, with sources indicating a targeted valuation of approximately £2 billion. According to industry reports, the specialist bank’s planned listing could have substantial implications for other UK fintech companies, particularly neobanks Monzo and Starling, both of which are considering their own public market debuts.

Valuation Comparisons Raise Concerns

Analysts suggest Shawbrook’s financial metrics could spell trouble for the private valuations of competing fintech firms. The reported £2 billion valuation would place Shawbrook at just under seven times its pre-tax profit of £295 million, according to last financial year’s results. By comparison, Monzo reportedly seeks a £6 billion valuation despite posting £60.5 million in pre-tax profit, while Starling’s recent secondary share sale implied a £4 billion valuation against £223 million in pre-tax earnings.

Samuel Kerr, global head of equity capital markets at Mergermarket, noted that “there’s a mismatch at the moment between how private markets will value a business and how public markets will value a business.” This discrepancy suggests that applying Shawbrook’s valuation multiple to Monzo and Starling would place both companies below £2 billion, significantly under their current private market prices.

Profitability Versus Growth Trajectories

The analysis reveals stark differences in financial performance between the established digital lender and the newer neobanks. Shawbrook reported £1.4 billion in operating income alongside its substantial profits, while Monzo’s revenue grew to £1.2 billion with significantly lower profitability. Starling posted £714 million in revenue but saw growth stall to approximately 5% last year, with profits declining by a quarter.

Davide Sangiovanni, an investor backing several fintech ventures, described Shawbrook’s IPO valuation as “a nightmare for Starling,” suggesting the comparison highlights potential overvaluation in the private markets. Both Monzo and Starling have faced regulatory challenges, including substantial fines for financial control failures, though Monzo’s 44% year-on-year revenue growth may help justify its premium valuation, according to analysts.

Divergent Business Models Complicate Comparisons

Some industry experts caution against direct comparisons between Shawbrook and the neobanks. Tom Bacon, corporate finance partner at law firm BCLP, noted that “just because a bank for a company that looks outwardly the same as another doesn’t necessarily mean the same multiple will be applied across the piece.”

Shawbrook differs fundamentally from its newer competitors in several respects. Backed by private equity rather than venture capital, the bank focuses on niche services including SME lending, asset-based financing, and buy-to-let mortgages. Although founded in 2011, the company traces its origins to 1988 under a different name, positioning it as more established than the startup neobanks.

London’s Fintech Listing Appeal

The Shawbrook IPO is being closely watched as a barometer for London’s attractiveness to fintech companies considering public listings. Joel Perlman, cofounder of Oaknorth, acknowledged that “at the moment, the US market is better value than the UK,” but suggested Shawbrook’s offering could demonstrate the London Stock Exchange’s viability for fintech floats.

However, not all observers view the listing as a make-or-break moment for London’s financial markets. Bacon argued that debate around the LSE’s suitability has been overstated, potentially driven by “self-interested” advisors favoring New York listings. He maintained that “it’s in the best interest of the company to be listed where you’re based,” while acknowledging that lighter disclosure requirements make private markets increasingly attractive for growing companies.

The outcome of Shawbrook’s public offering will likely influence how both Monzo and Starling approach their own IPO plans, with the valuation multiples achieved serving as a crucial benchmark for the entire UK fintech sector.

References

• https://news.sky.com/story/monzo-lines-up-bankers-to-spearhead-blockbuster-6b…
• http://en.wikipedia.org/wiki/Fintech
• http://en.wikipedia.org/wiki/Monzo
• http://en.wikipedia.org/wiki/Valuation_(finance)
• http://en.wikipedia.org/wiki/Initial_public_offering
• http://en.wikipedia.org/wiki/London_Stock_Exchange

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