The market is trying to make up its mind on whether to sell off because AI is going to make us all unemployed, or because SCOTUS struck down Trump’s tariffs, thereby invalidating all the trade deals that were made over the last year. Just when we were hopeful that January’s PMI print was the start of a period of industrial recovery, business confidence stands to take another hit as tariff changes are causing new uncertainty. We’re looking forward to the US telling its trading partners that the recently closed trade deals will have to be renegotiated.
But what we want to focus on this week is our index change monitor, ahead of the U.S. listing of Ashtead (AHT LN) next week. We have tracked exchange changes since KEDM launched in 2020. Historically we focused on switches between NYSE, Nasdaq, and OTC. As of this week, we will be adding cross-border listings to the mix.
Let’s start with why we are tracking US listing changes.
NYSE to Nasdaq transfers are usually cosmetic and not directly tradeable. One recent exception is Gold.com, formerly A-Mark Precious Metals. The move to the NYSE and ticker change to GOLD neatly lined up with a rerating that operating performance does not begin to explain.
OTC moves matter far more. A downlisting to OTCQX, OTCQB, or Pink Sheets often triggers forced selling since most institutions cannot own OTC paper. The usual culprit is failing listing standards such as timely filings or minimum market cap thresholds.
Uplistings can be juicier and easier to play for the long only investors. A NYSE or Nasdaq listing opens up a stock to a much larger investor base, often resulting in a material rerating. Talen Energy is a good case study. After emerging from bankruptcy in June 2023, it traded OTC until a July 2024 Nasdaq uplisting. The stock did not rally on the listing alone. It was a stack of catalysts hitting at once: clean balance sheet, new CEO, asset sales, a friendlier backdrop for nuclear, and surging power demand.
Now let’s move over to cross-border listing changes, which in most cases means companies that decide to move their listing from a non-US exchange to either the NYSE or Nasdaq. Often lured by higher trading multiples enjoyed by their US peers, it’s become a more frequent occurrence for non-US companies with significant US operations to leave their home market behind in pursuit of the American Dream.
The reason we are flagging this today is because of Ashtead’s progress to change their primary listing to the NYSE, with an effective date on March 2nd. Ashtead operates the second largest equipment rental business under the Sunbelt name. Its direct competitor, United Rental, had always traded at a minor discount to Ashtead. Ashtead believed their premium to be justified because of their exposure to less cyclical end markets, as well as their better track record in shareholder value creation.
This premium flipped to a discount in 2024. By the end of the year Ashtead’s board had made up their mind: they would pursue a US listing.
The London Stock Exchange has become a graveyard of stocks that either fail to meet up to their potential, or are simply not getting the love from the market that they deserve. And if UK stocks don’t go up, why would any international investor allocate capital to that piece of the world. A 0.5% stamp duty on purchases of UK stocks doesn’t do them any favors either. Although maybe this tax exists to protect investors from the painful consequences of actually owning UK stocks.
While this relisting is likely to result in a smaller valuation gap with United Rentals (URI), history tells us this won’t happen overnight. In fact, the removal of their UK listing could result in forced selling from passive UK investors, as well as active investors with a specific UK mandate. Let’s look at 3 recent examples of UK companies that moved their primary listing to the US.
Ferguson (FERG) listed in the US on March 8, 2021. They only moved their primary listing on May 12th 2022, and they didn’t become eligible for Index inclusion until December of that year. The change on primary listing resulted in forced selling for several months, with the forced buying only kicking in months later as a result of the index inclusion.
Flutter (FLUT) started trading on the NYSE on January 29th 2024, but they kept a secondary UK listing alongside it. Does this graph show signs of forced selling immediately following the listing change?
CRH (CRH) moved its primary listing to the US on September 25th, 2023. It took another 1-2 months before the rerating took effect.
We’re sort of lukewarm on Ashtead’s business. As a lessor of rental equipment, they had benefitted enormously from the inflationary period in 2021-23, but business momentum has slowed significantly since then. They would need to see a pickup in non-residential construction to do well. At a mid-to-high-teens earnings multiple, this isn’t super exciting as a direct long (though potentially as a pair-trade vs URI), but we’re keeping an eye on how this trades over the next few months.
A final name we’re tracking is JBS (JBS). JBS is a Brazil listed producer of protein (beef, pork, chicken) who recently decided to list on the NYSE, in parallel with its Brazil listing. The US listing makes JBS eligible for index inclusion in 2026. Whether or not JBS is cheap on a FCF multiple will depend largely on whether beef prices will moderate while chicken prices will remain flat. But the company is hopeful it can close its valuation gap with peers and is actively buying back shares to speed up that process.
While both companies are hoping for a rerating in line with US peers, the American Dream isn’t always what it is meant to be. At least their industrial rental business or protein processors are unlikely to be branded an AI loser, although in this market you never know.