IPOs in Europe Leapfrog U.S. as Cheap Valuations Draw Investors

IPOs in Europe Leapfrog U.S. as Cheap Valuations Draw Investors

The volume of initial public offerings in Europe jumped more than sixfold in the third quarter as investors lured by cheaper valuations and strengthening economies put their money to work in the region. IPOs in Europe surged at more than double the pace of those in the U.S., according to data compiled by Bloomberg, as Deutsche Annington Immobilien SE, Germany’s largest residential landlord, and U.K. property broker Foxtons Group Plc sold shares. Volume rose more than 10 percent globally compared with a year earlier, weighed down by a 40 percent drop in Asia.Investors are returning to Europe after European Central Bank President Mario Draghi and German Chancellor Angela Merkel helped ease the region’s debt crisis and end the euro-area recession. While growth prospects at companies such as Twitter Inc. are stoking interest in U.S. IPOs later this year, $1 billion-plus offerings from the U.K.’s Royal Mail Group Ltd. and London-based Merlin Entertainments Group Ltd. may get a boost from funds flowing toward Europe amid limited growth potential in the U.S., where stocks have climbed to records.

“There is a perception that the majority of the region’s economic problems are behind us and we’re going to see lower volatility levels,” said Josef Ritter, head of equity capital markets for Europe at Deutsche Bank AG in London. “A key theme of this quarter was U.S. investors refocusing on Europe.”

European Equities

U.S. investors bought more than $65 billion of European equities between January and May, the most since before the financial crisis, Goldman Sachs Group Inc. analysts including Sharon Bell and Matthieu Walterspiler said in a research report this month. U.S. funds that invest in European equities attracted $13.1 billion in the six weeks through Sept. 18, Societe Generale SA and EPFR Global data show, even as investors withdrew $16.9 billion from funds buying U.S. stocks.

Expensive U.S. equities this year following the S&P 500 Index’s 20 percent surge are making Europe a natural place to look for growth, said Hans Olsen, chief investment officer for the Americas at Barclays Wealth, a unit of Barclays Plc.

“It is very risky to be overweight at these prices so you start to look somewhere else. The standout was Europe,” Olsen said.

Member companies in the Euro Stoxx 50 Index are trading at about 13 times this year’s estimated earnings, compared with more than 19 for companies on the Nasdaq Stock Market and the Nikkei 225 Stock Average, data compiled by Bloomberg show.

Moncler, Numbericable

Italian clothing maker Moncler plans to list shares as early as November in a sale that could raise about 1 billion euros ($1.35 billion), people familiar with the matter have said. French cable-TV operator Numericable SAS also plans an IPO in the third quarter and could be valued at as much as 5.5 billion euros in the sale.

Gross domestic product in the 17-nation euro area rose in the second quarter, bringing to a close six straight quarters of contraction, the longest slump since the euro’s debut in 1999. The euro meanwhile has gained 5.5 percent against a basket of nine major peers in 2013, the biggest jump in the group and poised for its first annual gain in five years, Bloomberg Correlation-Weighted Currency Indexes show.

Still, risks remain. While the European Central Bank raised its 2013 euro-zone economic projection this month, it still sees a 0.4 percent contraction and expects only a “gradual” pickup in activity.

‘Subdued Recovery’

A possible resurgence of political tensions, upcoming bank balance sheet assessment and deleveraging all could constrain the region’s recovery next year, according to Philippe Gudin, chief European economist at Barclays in London.

“These headwinds pose some risk to our macroeconomic scenario and reinforce the view that the recovery will be very subdued,” Gudin said.

While U.S. IPO volume lagged behind Europe in the third quarter, it still tripled to more than $11 billion from a year earlier. Sprouts Farmers Market Inc., the grocer partly owned by Apollo Global Management LLC, and Benefitfocus Inc., a benefits-software company, more than doubled in their trading debuts during the quarter as the stockmarket rally stoked investors’ confidence and appetite for risk.

That pace of IPO activity may set the stage for sustained momentum through the end of the year as long as the U.S. government doesn’t begin to taper stimulus spending more quickly than investors are comfortable with, according to Ashley Delp, co-head of equity capital markets for the Americas at Jefferies Group LLC.

Twitter, Alibaba

Empire State Realty Trust Inc. (ESRT), whose properties include Manhattan’s Empire State Building, may raise as much as $1.07 billion in an IPO tomorrow. Microblogging service Twitter, which has more than 200 million members worldwide, said on its website Sept. 12 that it filed IPO paperwork confidentially with regulators.

Alibaba Group Holding Ltd., China’s biggest e-commerce company, is moving toward a U.S. listing after talks with the Hong Kong stock exchange for an IPO broke down, a person familiar with the matter said this month. The listing may value the company at more than $100 billion, people familiar with the situation have said. The company hasn’t yet hired banks and may move ahead with the offering next year.

In the Asia Pacific region, the value of IPOs fell in the third quarter as a rebound in Hong Kong failed to offset declines in Japan and Southeast Asia. Companies raised more than $10 billion from initial sales in the region, compared with about $17 billion a year earlier, data compiled by Bloomberg show.

“Investors are constructive on a global basis, while still being discerning about where they’re putting their money to work,” Jefferies Group’s Delp said. “In terms of firing on all cylinders from a global perspective, I would say we’re not quite there yet, but we’re certainly heading in that direction.”

To contact the reporters on this story: Ruth David in London at rdavid9@bloomberg.net; Alexis Xydias in London at axydias@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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