Europe IPOs: debutantes need discounts to catch a ride

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Initial public offerings parallel the wait for London cabs. First, there are none. Then they arrive in convoys.

Europe’s investment bankers hope so, at any rate. Their kerbside wait has been unproductive of late. The Ukraine war and successive interest rate rises have destabilised markets, Globally, issuers have only offered $60bn of shares to date in 2023 — the least for the past six years. But a few pale headlights are winking in the distance

In London, CAB Payments — a specialist in business-to-business money transfers to emerging markets — plans to float at an £850mn valuation. In Romania, hydroelectric giant Hidroelectrica will price its €8.5bn to €10.2bn IPO shortly. German investors meanwhile await the listings of Nucera, Thyssenkrupp’s hydrogen unit, and Schott, a maker of pre-filled syringes.

This modest renaissance reflects improving market conditions. The Euro Stoxx 600 index is up almost 20 per cent since last September’s low. Risk, measured by price volatility, has more than halved. Indeed, one might have expected the IPO window to have flown wide open. 

Potential investors eye new listings with caution, though. It is hard to blame them given the poor performance of the few 2023 IPOs. The worst, German web hosting group Ionos, trades 30 per cent below its aspirational IPO valuation.

This is a buyer’s market. Market hopefuls must offer larger-than-usual discounts to attract interest. At the midpoint of its range, Hidroeletrica would price at 10 times last year’s ebitda, a 25 per cent discount to Germany’s Verbund. Similarly, at a mooted valuation of €2.4 to €2.7bn, Nucera would price at about 3.5 times 2025 sales, about 15 per cent below Norway’s NEL. 

Unsurprisingly, that limits IPO candidates to those very keen to get a deal done. Thyssen and Nucera both have heavy investment programmes ahead, while CAB’s private equity owners have waited seven years for the ride home. Timing is all. The recent stock market rally hints at a greater appetite for risk, if the price is right.