There are an increasing number of large firms which are thinking about changing their main share listing from the UK to the US or elsewhere, raising fears London is losing its importance.

This article explains why companies are giving serious thought to this issue and who might be next to press the button.

Irish building materials giant CRH (CRH) is the latest firm to decide to move its main listing to the US. It is expected to take effect around the end of September 2023. Its UK listing will subsequently change from a premium to a standard listing, and it will no longer qualify for inclusion in FTSE indices.

The company received overwhelming shareholder support for the plan. The US represents around 75% of its EBITDA (earnings before interest, tax, depreciation and amortisation) and it believes the move will bring commercial, operational and acquisition benefits.

Chief executive Albert Manifold said the US is expected to be a key driver of growth and the listing marks ‘an important milestone in our development and will enable CRH to fully participate in the significant growth opportunities that lie ahead.’

Gambling firm Flutter Entertainment (FLTR) has received shareholder support for a secondary US listing which management envisage will provide strategic and capital market benefits as it pursues growth in that country.

Flutter’s market leading US fantasy sports betting brand FanDuel is expected to turn a profit in 2023 and has the scope to become the largest division within the group in coming years given the growth opportunity. Flutter toyed with the idea of floating FanDuel on Nasdaq in 2021.

In time Flutter may decide to make New York its primary listing and London its secondary listing.

Plumbing, heating, and air conditioning solutions group Ferguson (FERG), formerly known as Wolseley, added a secondary US listing in 2021 before making New York its primary listing venue in 2022.

The company began thinking about a US listing in 2019 after activist investor Nelson Peltz took a stake and pushed for the group to focus on its North American business.

Chief executive Kevin Murphy told the Financial Times that moving the primary listing venue had achieved most of its goals and facilitated management to speak with a ‘very large pool of capital’ for little extra cost.

WHY DO COMPANIES MOVE THEIR LISTING?

There are several good reasons companies make the move, but top of the list, and what connects all the moves seen so far, is the sheer amount of business these firms already do in the US.

Moving a listing to the region where a company does most of its business makes commercial sense, especially if its peers are already listed on the local stock exchange.

Ferguson believes it meets the criteria to be included in the S&P 500 index which is one of the most tracked indices in the world and a major attraction of having a US listing.

Increased trading volumes usually result in tighter trading spreads (the difference between the buying and selling price) which reduces costs to investors.

Deeper capital markets attract wider analyst coverage which in theory means more information is disseminated to a wider audience.

This can make it easier to raise capital because the investment narrative is widely known, especially if a firm’s peers are also listed on the same exchange.

Many firms highlight the potential to achieve a higher valuation as another advantage of listing in the US.

Citigroup strategists argue UK-listed shares trade at a record valuation discount to their US peers, heaping pressure on companies to consider relisting abroad.

However, the jury is still out on whether a move increases a company’s valuation in practice.

Life science tools and antibody maker Abcam (ABCM:NASDAQ) moved its listing entirely to the US in 2022 and cancelled its London listing.

Abcam was one of the largest firms on London’s junior AIM market and a popular name with retail shareholders due to its strong share price performance since listing and inheritance tax benefits that came with being a certain type of company on AIM.

The company raised more than $150 million for a listing on the technology-focused Nasdaq index in October 2020 which it argued would have been hard to achieve on AIM.

Yet the shares trade at roughly the same listing price around $20, despite the Nasdaq Composite index rising 22% over the same period.

Another example is equipment hire group Ashtead (AHT) which generates 84% of its sales and 90% of profit in the US which makes it one of the most US-focused groups on the London market.

Its shares trade at a premium to US peer United Rentals (URI:NYSE) which trade on 10.3 times earnings per share compared with Ashtead’s 18-times according to Refinitiv data.

Ashtead told Bloomberg it reviews its listing periodically but remains committed to London.

Having a US-listed share can be helpful when structuring acquisitions because the US dollar is more valuable to US companies than offering UK shares.

Both Ferguson and Ashtead continue to be acquisitive in the US as they consolidate fragmented markets.

WHO COULD BE NEXT?

The yawning valuation gap between oil major Shell (SHEL) and US peers ExxonMobile (EXON:NYSE) and Chevron (CVX:NYSE) is prompting its top executives to explore the advantages of a US listing according to a Financial Times report.

Shell trades on a price to earnings ratio discount to ExxonMobile and Chevron of 22% and 33% respectively. Losing another big resource stock after miner BHP (BHP) moved its primary listing to Australia would be a blow for London, but it would also make the FTSE 100 less resource heavy.

Companies which generate most of their sales and profits from the US could potentially up sticks but in practice there are several factors which go into the decision.

Ashtead is clearly the front-runner given its predominately US business but as discussed, its shares already trade a premium to its main US peer, removing a big incentive.

There are a handful of FTSE 100 firms which generate more than half of their business in the US, but they also do business across the globe and are therefore more diversified.

For example, food services giant Compass (CPG) has a global business operating in over 40 countries but generates two thirds of its sales from North America. It seems unlikely the company will move its listing stateside.

However, education company Pearson (PSON) which generates 60% of its revenues from the US market has indicated it is open to a US move if it was deemed in the best interest of shareholders.

Around four years ago the management of medical products company Smith & Nephew (SN.) mulled a shift in its primary listing.

But according to some reports this was partly motivated by the-then CEO Namal Nawana looking to increase his pay. He denied this, saying a move would be a strategic question for the board.

We see little reason for Standard Chartered (STAN) to retain a UK stock market listing as its focus is Asia and the company trades at a significant discount to peers in that region. Moving its listing to Singapore, for example, could see it command a much higher valuation.

WHAT TO EXPECT WHEN A LISTING MOVES

Shareholders have certain rights which mean their economic interests remain in place regardless of where the shares are listed. It is more a question of electing to swap existing shares into overseas shares or selling the shares if the UK listing is cancelled.

When Abcam delisted, shareholders were given plenty of notice to decide to either exchange their UK shares into US ADRs (American depository receipts) or keep their UK shares. The downside to keeping the UK shares is they are no longer tradeable.

In the case of building materials group CRH, it is changing to a standard listing on the London Stock Exchange and, investors do not need to do anything to maintain their exposure to the company.

The London shares may become relatively less liquid, but everything else will remain the same. Institutional investors may decide it is beneficial to hold the most liquid version of the shares which may reduce the liquidity in London.

The shares will not be eligible for inclusion in the FTSE indices which means UK tracker funds no longer need to hold the shares which again may reduce liquidity.

When mining company BHP moved its primary listing to Australia in 2022 and its London shares converted to a standard listing, the UK shares were removed from the FTSE 100 index.

Arguably this was beneficial to the remaining listed UK mining shares because investors looking to maintain exposure to the sector might look to buy those names instead.

To give an idea of relative liquidity following a listing change, BHP’s UK shares trade an average daily value of £37 million while in Australia it is around £300 million.

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