As much as a quarter of SpaceX's $75bn listing could be reserved for individual investors. Credit: iStock
UK retail platforms have revealed plans to offer clients the chance to participate in the IPO of Elon Musk’s SpaceX, the first overseas listing directly available to the UK retail market.
As much as a quarter of the company's $75bn listing could be reserved for individual investors, with founder Musk aiming to prioritise small shareholders as a large part of the company's investor base, according to the FT.
If successful, it would represent the largest retail allocation ever by a mega-cap IPO.
On Thursday (4 June), Hargreaves Lansdown (HL) revealed it would offer free participation in the SpaceX IPO, reportedly set for 12 June, meaning clients would not have to pay any dealing charges – the same as for UK IPOs – or foreign exchange charges.
HL clients will be able to apply for shares through their Stocks and Shares ISA, Lifetime ISA, Junior ISA, Fund and Share Account, SIPP, SIPP Drawdown and Junior SIPP accounts until 11:59pm on 10 June, with a minimum investment of £1,000.
On its landing page for participation, HL emphasised investors should ensure any shares owned form part of a diversified portfolio and that they should be comfortable with not knowing the purchase price in advance, as companies are difficult to value or price at IPO.
Although Simon Belsham, chief client officer at HL, said he recognised the SpaceX IPO "might not be right for everyone", it also represented an exciting moment for many of its clients.
"We have seen significant interest from both new and existing clients, [and] we are expecting this might be a first foray into investing for many.
"Hargreaves Lansdown will be taking this opportunity to engage with these new investors and give them the information they need to make informed decisions, not only in relation to whether or not this is the right investment for them but also on how to build a well-diversified portfolio for the long term," Belsham explained.
Likewise, eToro unveiled last Friday (5 June) that it would also participate in the SpaceX IPO, with eligible retail investors able to apply for shares until 9pm on 10 June, with a minimum investment amount of $750 or GBP equivalent.
An eToro spokesperson told PA sister title Investment Week: "As with any share offering, we encourage investors to read the disclosure summary and all relevant offer documentation carefully, and to consider both the potential opportunities and the risks before deciding whether an investment is right for their individual circumstances."
Risk/reward potential
An analysis by AJ Bell of how ten of the biggest ever IPOs performed on their first day of trading, including Alibaba, Visa and Facebook (now Meta Platforms), found that shares traded 14.2% higher on average at market open on day one versus the IPO price.
This meant someone who took part in the IPO offer "made the type of return in a matter of days that an investor may only hope to make in a year from stocks and shares", said Dan Coatsworth, head of markets at AJ Bell.
However, he highlighted the significant risk involved: "IPO offers do not always come up trumps for investors. For instance, two of the top ten IPOs of all time began trading below their IPO offer price on their first day – Saudi Aramco and SoftBank.
"Even stocks that initially did well can do a handbrake turn, such as Facebook, which jumped 10.7% when the market opened on its IPO day in May 2012. Four months later, the stock was trading at half its IPO offer price."
Coatsworth also noted how investors do not know precisely what they will pay for SpaceX at IPO, with no guaranteed price. If demand for stock is high, investors might end up paying more for the company than they think it is worth.
"SpaceX could be worth up to $1.78trn at listing, equal to 95x 2025 sales. That is around four times as much as Nvidia's rating based on revenue for its past financial year and latest market value," he explained.
"Some investors might justify a high valuation for SpaceX based on rapid earnings growth potential, others might argue it does not deserve such a rating. Should it list on an expensive valuation, it could put SpaceX at risk of suffering a large share price decline on the slightest bit of bad news," he warned.
This article was first published by Professional Adviser's sister title Investment Week
