Raspberry Pi shows London’s public markets are still sweet

Investors woke up to a sweet surprise from Raspberry Pi on Tuesday, as the computer maker’s first post-IPO report topped expectations.

The British tech darling posted a 47 per cent rise in gross profit and a 56 per cent growth in adjusted earnings (EBITDA) for the first half of the year, driven by the sale of 1.1m Pi 5 units.

Raspberry Pi’s June float on the London Stock Exchange marked a rare moment of activity in the City’s otherwise dormant public markets. 

With many lamenting the state of London’s IPO scene, its success could be a much-needed sign that the capital still has its charm for tech firms seeking to list.

“It is likely it will help the LSE with the issue of low valuations and liquidity as Raspberry Pi represents a true UK technology success story,” said Dr. David Ramm, partner at law firm Crowell & Moring.

Its fellow Cambridge tech success Arm dealt a blow to the City when it opted to debut on New York’s Nasdaq exchange at a £43.6bn valuation a year ago but was criticised for a post-IPO slump.

Ramm also speculated that, had Arm chosen London, the listing might have generated more excitement that could have driven increased valuations and liquidity. 

It comes as London is gaining ground on New York for the title of the world’s top financial hub. The latest Z/Yen Global Financial Centres Index showed London in second place, closing the gap with New York, which narrowly held onto its crown.

Peel Hunt analyst Damindu Jayaweera told City A.M. that Raspberry Pi’s IPO “shatters a number of myths about the London market.” The valuation of the company aligns with the average of US-listed giants like Qualcomm, Broadcom, and Rockwell, with no material discount to listing in London, he explained.

Investment giants like Fidelity, Blackrock, Columbia Threadneedle and Janus Henderson have all backed Raspberry Pi, dispelling fears that London can’t attract top-tier investors for sub-$5bn listings, Jayaweera added.

A sweet future for London’s tech market?

Raspberry Pi’s IPO, which raised $225m (£168.18m) against $1.2bn (£900m) in demand, has the potential to inspire other tech firms to list in London rather than turning to Nasdaq, Ramm said, although he added “it is not clear that the Raspberry Pi float represents a change in mood towards listing in London.”

The London Stock Exchange and particularly AIM, the exchange for smaller companies, are struggling to attract capital for growth and scale-up businesses. Still, Raspberry Pi’s success may prevent further de-listings and encourage UK tech firms to consider London as a preferable option for future floats.

Neil Shah, director of content and strategy at Edison Group, said: “Successful market debuts are important to build confidence for other tech businesses looking to float.”

While the market’s reception to Raspberry Pi has been positive, with shares up over eight per cent on Tuesday, Shah questioned whether it is enough to swing the fortunes of the London market, which still lacks champions like Nvidia and ASML.

“There are still investors that require convincing that Raspberry Pi has a sufficiently strong moat to avoid losing to lower cost competition from abroad. To change the fortunes of London – some of the reforms that have been put on hold with the change in government need to progress,” he said.

And Raspberry Pi’s shares, which hovered around 370p on Tuesday afternoon, are still trading considerably below the 440p price they hit in the week following the IPO. 

“As such it is likely there is some way to go before Raspberry Pi’s success will tempt many investors back into the London IPO market or persuade investors to be more generous with their IPO valuations,” said Oliver Pilkington, partner in the corporate team at Shoosmiths.

He added it is however “heartening to see a company performing well on the London market after so many have failed to live up to their IPO hype”.

As foreign investors continue to attempt snatches at British firms for depressed prices, Raspberry Pi’s success is a reminder that London can still be a fertile ground for tech IPOs. 

“One advantage for Raspberry Pi is that the company is not built on hype,” said Mark Crouch, market analyst at eToro. “On the contrary they have a loyal customer base that is growing.

He pointed out that the computer manufacturer’s low price is both a strength and a weakness though, as disruption to supply chains and economic instability may squeeze margins and force costs up.

Still, Crouch summed it up neatly: “For Raspberry Pi the proof will ultimately be in the pudding, which so far is tasting pretty good.”