If you had put £100 on an index of the six publicly listed print companies five years ago, it would today be worth £81.30. Take out specialist security printer De La Rue from that list and your £100 would be worth just £43.60. This disastrous performance is against an all-share index that has risen by almost 10% over the period. Investing in print, it seems, is almost as ruinous as printing itself.

With this in mind, it is easy to see why in a sector of more than 10,500 firms, according to the BPIF, only six are currently trading their shares on a public exchange. However, as the market diversifies and more niche printers emerge, there is a growing opportunity for print companies to raise capital through a public listing.

Print’s lack of representation on the stock market is perhaps surprising when one considers the nature of the industry and the benefits that can be harnessed from a listing. Capital-intensive industries have tended to be better suited to listing as companies are able to raise funds to invest in new equipment without piling on the debt. In addition, companies in highly fragmented sectors can benefit from a listing by raising funds to make consolidation plays.

Horror stories
However, the run of poor performances from companies in the printing sector may have deterred others from listing and raises questions over whether investors understand the industry, and there is no shortage of horror stories to put off a company considering a listing.

Office2Office was formed in 2000 to acquire the assets of Banner Business Services from The Stationery Office in 2000. Listing on the official list of the London Stock Exchange (LSE) in June 2004 as an exit strategy for Gresham, which backed the launch of the company, Office2Office promised to "continue to broaden the market and provide new opportunities for growth".

Initially, the company’s shares performed very strongly, rising by around 50% in 18 months. However, despite a strong annual performance that saw revenue rise by 6.4% and pre-tax profits by 14%, the share price began to fall. Further growth and the realisation of its growth by acquisition strategy in 2007 failed to make an impact and the share price continued to fall. Indeed, as bullish statements and acquisitions continued in 2008, the share price plummeted to a low of around one third of the listing price in 2009. Today (29 June), Office2Office shares trade at 138p, significantly less than the value at which they listed in 2004.

Office2Office is not alone in the poor performance of its shares. Of the six companies in the print index, only De La Rue and Printing.com are currently trading above the share price they listed at and Printing.com is only trading at 5.75p more, an increase that in fact represents a fall in real terms once inflation is factored in, although the company has paid out more than 50% of its market capitalisation in the 10 years it has been listed. Communisis listed in 1994 at 90p a share, trading today at 31p, St Ives has fallen from 220p in 1984 to 103p today and Tangent from 54p in 2000 to 6.12p.

With that in mind, perhaps it is not surprising that there is not a rush to list in the print industry. However, it is not just poor share performance that provides a barrier to listing for printers. Another factor in the slow take-up of listings is the size of the companies in the industry. With only around 400 companies in the sector turning over more than £1m a year, the vast majority of companies are too small to list, a problem that has been exacerbated by the growth of AIM, the junior market on the LSE.

Despite the challenges, stock market experts remain adamant that the market is not closed to print companies. One such expert is Malcolm Morgan, the media specialist at broking house Peel Hunt. Asked if a print company would list on the stock market again, he responds with a "qualified yes".

"There is always an appetite among investors for strong business stories and there will always be investor interest in the right company. Investors look at individual companies. If you are looking to float a printer that services, say, the regional press then you might struggle. A high-value security printer producing something like complex food labels will have a stronger story," he says.

As an industry, printing has been in the doldrums for the past five years, feeling the effects of the recession more than most in a sector already plagued by overcapacity. However, according to Morgan, this should not mean that print is shunned by investors.

"Investors want an understandable business model that can demonstrate medium-term growth. You need to distinguish yourself from the broader scope of overcapacity in the sector. If you offer a generic printing service that is vulnerable to overcapacity, you would struggle to prove to investors that you have a strong story for growth," he says.

Niche growth
But as print moves away from commodity printing and the marketplace bustles with innovation, openings will emerge for public listings. And for the right company with a proven track record and a solid growth proposal, a listing might be just the thing to realise the potential of the firm.

Printing.com chief executive Tony Rafferty says that listing the company has provided it with significant opportunities that would not otherwise have been available. "The listing enabled us to raise finance to expand our operations," he says.
"In addition, there have been a number of other benefits of the listing including raising the profile of the business, increased press coverage, more credibility and the ability to use shares as a staff incentive.

"There are certainly different pros and cons of raising money on a stock exchange over using venture capital or private equity funding, but for us, the stock exchange route has been a success," he adds.

Likening a stock market listing to the film Indecent Proposal, Rafferty says it is up to individual companies to ask themselves what they would do for $1m. When you list on a stock exchange you lose a lot of independence. For owner-managers the influx of responsibilities may prove to be an unwelcome distraction from the business of turning a  profit, but the benefits outlined by Rafferty should not be underestimated.

Indeed, Rafferty believes that a print company will float again, although, agreeing with Peel Hunt’s Morgan, he says that it will have to be a printer operating in a niche, possibly with a big component of online, which may make it more attractive to investors.

Over the moon
One such company that fits this bill is Moonpig. Having stormed to a £20m turnover in 10 years, the company has an impressive track record and, in the growing market of personalised greetings cards, it looks set to continue its exponential growth. However, Moonpig founder Nick Jenkins says the company has no plans to float.

"We’ve never looked seriously at a floatation," he says. "The fact of the matter is that we have always been able to finance our growth plans independently."

Herein lies the contradiction. In a market that has shunned traditional printing, it is the new-age printers specialising in niche technologies and multiservice products that have the most open doors in the city, but these are the ones where capital expenditure is lowest. In addition, with kit manufacturers constantly finding new ways to structure payments for presses, the need to raise significant sums to invest is diminishing.

With the barriers of poor share performance, a sector plagued by overcapacity and the contradiction that the new-tech print companies that might seek a listing probably don’t need to, it is easy to predict that it may be some time before we see a public listing out of the sector.

However, if you cast your eyes over the top 20 print companies in the UK and look at their ownership and who might be looking to exit in the next few years, a few contenders may just crop up. There will be few private buyers for print companies with turnovers in the tens or hundreds of millions and for the incumbent owners, an IPO would be the best way to exit, or else a lengthy a complicated break-up of the companies may be the only option.

If these companies can spend a few years streamlining their operations and posting a growth in profits, perhaps we may see a few more print listings within the next decade than you might think likely today.

THE PRINT INDEX: FIVE-YEAR PERFORMANCE
Five years ago; Today (29 June)
Communisis 84p; 31p
De La Rue 568p; 753p
Office2Office 281p; 138p
Printing.com 67p; 36.25p
St Ives 246p; 99p
Tangent Communications 10p; 6.12p