Breakingviews - Wise's US listing switch lacks financial wisdom
LONDON, June 5 (Reuters Breakingviews) - Wise (WISEa.L), opens new tab helps customers exchange money more cheaply, transparently and, well, wisely. But the $15 billion firm's plan, opens new tab to shift its primary listing to New York from London seems less clever. CEO, co-founder and largest shareholder Kristo Käärmann wants to tap deeper pools of liquidity and attract more American investors. Yet for a company already trading at a premium valuation, the move raises more questions than it answers.
Käärmann's case rests on two key points. Wise's shares are thinly traded in London, meaning investors risk moving the market by offloading stock in large volumes. Second, a U.S. listing would boost the company's appeal to American investors and even customers. There's truth to both. The total daily value of Wise's trading volume has averaged about half of $4 billion American peer Remitly Global over the past two years according to a Breakingviews analysis of LSEG data, even though the London-listed group is much bigger. And some domestic-focused U.S. investors prefer to hold stocks listed in their home market.
Yet Wise needn't cross the Atlantic Ocean to boost liquidity. One possible obstacle to winning more investors at home is the company's quirky governance, where Class B owners have nine votes per share. The effect is that Käärmann has a tight grip on the company despite owning less than 20% of the tradable Class A stock, according to LSEG data. The alternative to hopping across the pond would be to get rid of some of the CEO's special rights, which could in turn smooth Wise's entry into Britain's main stock benchmark, the FTSE 100 Index (.FTSE), opens new tab. That would boost liquidity to U.S. levels: LSEG research, opens new tab found that, relative to the volume of companies' tradable shares, FTSE 100 trading levels were slightly higher than in the S&P 500 Index (.SPX), opens new tab in 2022.
Nor is the United States Wise's biggest geography, as it was for other listing switchers like CRH and Ferguson Enterprises. For Käärmann's company, the American market comes third after Europe and Asia, making up 20% of group revenue. As for brand awareness, switching trading venue seems like a strange way to gain publicity compared with a marketing campaign.
Moving the listing also brings possible downside. Wise trades at 29 times consensus 2027 earnings – beating Remitly, Block, PayPal and others. Other metrics tell the same story: there's no evidence of a valuation penalty because of the company's UK trading venue. That means Käärmann has much to lose if the company ends up as one of the many 'orphaned' pond-hoppers, which switch listing but never quite catch fire in the U.S. market. Research by think tank New Financial earlier this year found that just 44% of the 16 European companies that had moved across the Atlantic subsequently beat the performance of their home continent.
The one consolidation is that this doesn't seem to be about extra CEO pay: Käärmann, as a major shareholder, has taken a roughly 200,000-pound ($270,000) cash salary in recent years, which is tiny compared to most bosses. There are no plans to raise that, according to a person familiar with the matter. But for investors, Wise's shift looks like a poor financial trade-off.
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