Raspberry Pi’s IPO should prove a tasty mouthful for London
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
If the proof of the pudding is in the eating then Raspberry Pi is already an appetite pleaser. The British maker of micro computers has proved a hit with customers since its early days as an educational start-up. Today it has a lucrative and fast-growing niche serving the technology needs of manufacturing businesses. Investors will soon get their own chance to taste a slice of Pi. The company is planning a London initial public offering at a mooted valuation of £500mn.
The listing, which is expected to take place in early June, is welcome. The London Stock Exchange faces vocal demands for public technology and growth companies. Yet with just 100 Aim and All-Share technology stocks, the menu is as small as it has been in two decades and shrinking. Cyber security specialist Darktrace is about to go the way of many UK-listed tech groups after agreeing a takeover by a private equity group. Despite the Raspberry Pi deal’s small size, a lot rides on its success or failure.
The company’s commercial life began by providing its single-board computers to enthusiasts and hobbyists who needed low-cost bespoke tech solutions. These revenues have since been overtaken by sales to business users which made up 70 per cent of the total last year. These customers need technology in products and processes but not in quantities that would justify dedicated manufacturing.
With growth, the model has shifted away from capital-light licensing deals towards fuller control of supply chains and direct distribution. The effect is bigger top and bottom lines. Sales grew 40 per cent last year while ebitda rose more than 60 per cent to generate a 16 per cent margin.
Assuming that rate of sales growth is maintained this year, Raspberry Pi should command a healthy valuation multiple at listing. The mooted £500mn valuation (there is no debt) works out at about a ten times multiple of forward ebitda assuming similar growth this year.
That compares with an average 15 times multiple for members of the FTSE All-Share Technology index, of which Raspberry Pi would be sixth from bottom by value. A calculation based on peers’ trailing profit margins suggests a multiple close to 13 times would be justified, valuing it at closer to £630mn. A comparison of peer growth rates suggests a higher valuation still. Such ingredients point to a successful float.
*This piece has been updated to correct an error in the valuation
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