One of the few groups that have lost ground in the hot European stock market this year has been investors who bought overpriced initial public offerings.
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In the past 15 months, THG Plc, Auto 1 Group SE, Allegro.eu SA, Deliveroo Plc and InPost SA all fell 39% or more, even as the benchmark went up 19%. That is not a good view for Europe's IPO market, which is clocking its busiest year since 2007 and preparing for a blockbuster start to 2022.
All of the duds either service or operate e-commerce platforms, a sector that boomed during the early months of the Pandemic s lockdowns. As economies reopened, their appeal waned, leaving these companies unable to sustain explosive growth. At the same time, many of them came to market with relatively high valuations, and investors questioned the governance of some, such as THG and Deliveroo.
The volume is higher and the quality is lower, and this year has precisely reflected that trend, said Luc Mouzon, head of European equity research at Amundi SA. He said that investors can end up with extremely negative returns if they aren't selective.
After the summer markets turned rocky due to concerns about supply chain issues, inflation and a resurgence of the epidemic, the worst of the losses came after the summer. The recent tightening of restrictions is good for companies that benefit from lock downs, but the broader market risks are outweighed by the fact that investors are moving out of frothier parts of the market.
Susannah Streeter, senior analyst at Hargreaves Lansdown Plc, said investors will be in wait-and- see mode, assessing the global economic recovery. A lot of IPO valuations have been led by expectations of future growth and some companies have seen their shares slide due to concerns about spiking inflation and expectations of rate rises. Aside from Deliveroo, which flopped in its debut and was never properly recovered, the newly listed stock laggards bounced back initially post-IPO. The company-specific headaches also hit hard, as macro worries contributed to the poor performance.
Governance issues and valuation issues have dragged the online shopping platform THG and food-delivery platform Deliveroo lower. After its slide this year, THG was booted from the Stoxx 600 on Monday. InPost's stock suffered after the Amsterdam-listed parcel-locker operator guided toward slower e-commerce volumes, while increasing competition weighed on Polish e-commerce giant Allegro.
It hasn't been bad news for investors in IPOs. About half of the more than 550 companies that went public in Europe this year have gone up from their offering prices. Fund managers will have plenty of chances to make up for their losses in 2022, with the first quarter looking chock-a-block for new offerings.
There is still a strong appetite for high-quality listings, according to Loic Chenevier, Natixis SA head of strategic equity capital markets for France and the Benelux region.
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