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European fintech groups are having a bad 2023 on growth and margin concerns. Shares of payment companies including Adyen and Worldline fell. Declining private sector financing valuations have become the norm. Coupled with the poor performance of the region’s listed banks, it’s hard to believe that fintechs and emerging banks are well-positioned to lead an IPO renaissance.
Still, hopes are high this year, especially in London. The UK is home to a number of fintech unicorns with huge potential. Rumors abound, including reports last week that Santander-backed currency group Ebury was in talks for a £2 billion London listing.
Its obvious rival is Wise, which entered the market via a direct listing in 2021 and is currently valued at £9.2 billion, trading on a forward price-to-earnings ratio of 30 times. A similarly high valuation would be needed for little-known Ebury to reach its expected market value. But sentiment toward the payments group has improved recently as concerns about the commoditization of services recede.
“Investors today are more willing to participate than in years past, with a sense that the market has crossed an inflection point from recent lows,” said Fahed Kunwar, an analyst at Redburn Atlantic.
As a result, the list of potential candidates is long – most of them neobanks, digital disruptors characterized by rapid customer growth but low profitability. Still, prospects for a successful public offering this year or even next appear slim.
Take Monzo, the largest UK company in the group: it has just raised £340m from private investors at a valuation of £3.9bn, signaling limited interest in testing public markets any time soon. There's good reason for that: Monzo has only just turned a profit, and the UK-listed bank trades at mid-single-digit multiples.
The same logic applies to IPO discussions for other neobanks such as Starling, Zopa and Atom, whose operations are too small and too unprofitable. The first company to test the UK market's interest in fintech needs a compelling earnings growth story.
What remains are buy now, pay later providers such as Zilch and Sweden's Klarna, as well as one-stop shop Revolut. The latter's battle with overdue accounts and the acquisition of a long-awaited UK banking license show that public markets still have a long way to go. Klarna looks set to launch in the US. Zilch, which last reported revenue of just £30m, may need to scale up first.
Bankers need not despair. For many fintech companies heading public, scale is the missing ingredient. As things stand, a merger deal seems more likely than a public offering.
andrew.whiffin@ft.com
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