Peel Hunt expects second straight annual loss amid tough dealmaking market but sees green shoots

Peel Hunt said today that it expected to report a second straight annual loss for its last financial year as the investment bank grappled with a reduced appetite for dealmaking and IPOs.

However, the company added that it was “in a strong position for when market conditions improve”. Its shares fell around seven per cent on Wednesday morning.

The City-based firm said in a trading update that an uptick in revenue was “not quite sufficient” to offset the impact of cost pressures, meaning it expected to post a loss. It said this was “broadly in line with market expectations”.

Peel Hunt previously swung to a pretax loss of £1.5m for its 2023 financial year from a £41.2m profit the year before. It cited an “extraordinary level of market turmoil” triggered by the war in Ukraine and interest rate hikes that have made bosses reluctant to commit to dealmaking.

The firm said on Wednesday that it expected revenue to increase four per cent year-on-year to around £85.5m, from £82.3m, for its 2024 financial year.

It pinned the revenue boost mainly on its investment banking, with M&A revenues accounting for a large proportion of the business’ deal fees.

“This shows demonstrable progress with our strategy to diversify revenues across different investment banking products,” Peel Hunt said.

“Whilst research payments were resilient, there was less institutional trading activity market wide in the period and so we saw a modest reduction in overall Research & Distribution revenues. Execution Services revenue reduced, again in line with overall lower market volumes.”

Peel Hunt added that Retailbook, the company it founded to give retail investors access to IPOs, received FCA approval on Tuesday, after recently raising £2.5m. It is expected to begin operating fully independently of Peel Hunt during the first half of the 2025 financial year.

The mid-sized investment banking sector was hit by a drop-off in dealmaking and IPOs last year. Just 23 firms floated on the London Stock Exchange’s two markets in 2023, a 49 per cent slide from the 45 registered in an already quiet 2022.

However, analysts expect a rebound in 2024 as central banks are likely to start lowering interest rates and the global economic picture improves.

“Market trading volumes remain low and [equity capital markets] issuance continues to be subdued. We expect these trends to continue until there are meaningful signs of recovery in the UK economy and fund outflows reverse,” Peel Hunt said on Wednesday.

“However, we continue to be active in public M&A, with financial advisory mandates on both the buy and sell side. Whilst IPO activity in the UK remains muted, there has been more activity in Europe and sentiment towards IPOs is improving in the UK, with investors increasingly willing to engage in relation to high quality companies.”

Peel Hunt is due to publish its 2024 financial year preliminary results on 13 June.

Updated with shares