‘The year of easy money is over’ for science and tech firms, says Edison director
“The year of easy money is over” for listed science and technology firms, the executive director of investment research group Edison has said, six months after a global tech selloff rattled industries.
Investors shed stakes in science and technology firms throughout March and April of this year, following an investment boom during the height of the Covid-19 pandemic – which has since put firms on the reduction shelf.
Speaking to City PM, Neil Shah explained: “The moment we went into this high inflation, higher rate environment, we suddenly found the valuations of these firms coming under significant pressure because those cashflows are discounted at a much higher rate.
“It’s slightly different from the last decade where you could have bought into an index of these and done fine. It’s really a stock picker’s market today.”
Bigger names have “more or less held ground”. But the science and technology IPOs that have come to market since 2020 have “faired pretty badly”, added Shah, with 84 per cent currently sitting below their issue price.
The pandemic-era waterfall of capital is certainly over for science and tech stocks – particularly those operating in healthcare. But there is a silver lining.
While valuations remain in question, a drive for returns could push investors towards smaller cap companies.
It is easier for a firm with a £50m revenue to double it than it is for a larger business to double a £500m take-home.
“Most healthcare and tech companies have the promise of ‘jabs tomorrow’. You’re investing in something that, if it pays off, you’re going to get significant cashflows coming out four, five, ten years down the line.
“There are going to be winners out of it… It’s not all doom and gloom for the healthcare sector.”