September 2020 Newsletter: All eyes on IPO

The baltic stock market moved sideways in September until the last week that brought a correction following declines in global equity markets. Thus, for Baltic stocks, the first autumn month ended in a negative zone at -1%, which is a relatively moderate setback if compared to the ones observed in Europe and the US: -1.4% and -3.8% respectively. Obviously, the markets needed correction and somehow investors attempted to figure out how significantly economies are being destroyed by the pandemic situation.

Since the beginning of the year, the Baltic stock market lost 5.8%, Europe is down by 11.2%, but the USA, on the other hand, gained 5.6%.


Figure 1. Performance of Baltic, USA and European indices since the beginning of the year until 30 September 2020

Source: Alphinox, Thomson Reuters, NASDAQ Baltic


Ignitis’ IPO Rocks

The major event on Nasdaq Baltic in September was a subscription for the IPO of the Lithuanian energy giant, which is returning now to the stock exchange and raising capital EUR 450 million in the capital. Money raised will be mainly used to modernize the existing network and to increase the capacity of green energy production from the existing 1.4 GW to 4 GW by 2030. To achieve this goal, the company plans to continue building wind farms, as well as to grow capacity in the biomass energy segment. This is to be welcomed, as green energy production is an area that is developing rapidly and, moreover, is strongly supported at the EU level.

When an IPO in Baltics is done, investors are primarily attracted by the dividends, which usually are rather high. Dividends are also the key pillar of shareholder reward when it comes down to utility companies, as they cannot cherish them with decent growth figures. Ignitis, when going on a stock exchange, made a commitment to pay out EUR 85 mn in 2020 and it also targets to increase dividend payments by 3% per annum going forward. Based on the offer price set at EUR 22.5, the dividend yield is 5%, which is a bit higher than what is offered by European utilities.

Figure 2. Financial ratios of European Utilities (Based on MSCI Europe universe) vs. Ignitis.

Source: Alphinox, Thomson Reuters, NASDAQ Baltic


Comparing the financial conditions of Ignitis with European peers, it can be concluded that the Lithuanian company has a lower return on capital, however, its financial stability is more robust due to the lesser debt burden. Assessing the IPO’s price based on the PE (price/earnings) ratio, Ignitis looks cheaper than its European counterparts. However, when the offer was just launched it had a price range from EUR 22.5 to EUR 28, leading to a PE range of 17 to 21. At that point, the company's valuation looked neither too cheap, nor too expensive and it did not provide any room for a certain discount for liquidity and stage of market development, as is usually seen with other utilities quoted on the Baltic stock exchange.


Figure 3. Dividend yield and PE of Ignitis vs. listed Baltic utilities

Source: Alphinox, Thomson Reuters, NASDAQ Baltic


Overall, Ignitis’ IPO is certainly a great milestone for the Baltic stock market, which will bring another good quality company to the exchange and provide investors with wider choice and the market – with liquidity.


Baltic Main List performance

Performance-wise, September was very diverse for Baltic companies. The price performances ranged from -13.5%, a decline posted by Estonian media company Ekspress Group, which announced share option program, to 5.22%, enjoyed by Latvian electronics company HansaMatrix. Among other mentionable top performers is Auga Group, which is also on the best performer since the beginning of the year, reported very good results positive results for the second quarter, increased its revenues by 20%, and almost tripled net profit.

Novaturas, however, continues to disappoint its investors as the stock price cannot interrupt the declining trend as the worries about COVID cases mount.


Figure4. Performance of Baltic Stock market companies & world indices as of 30.09.2020

Source: Alphinox, Thomson Reuters


As we enter autumn, investors seem to become less euphoric and more rational, which is reflected in the stock market movements, too. Good companies continue to perform well, while those strongly affected by negative internal and external factors continue to suffer. We believe that this trend will continue to unfold, which, however, may be interrupted by the forthcoming elections in the US.


Disclaimer

This press release is for information purposes only and constitutes neither an offer nor a recommendation to undertake any type of transaction or to buy or sell securities or financial products in the broadest sense. Alphinox Quality AS offers no guarantee of the completeness, correctness or security of this press release. Alphinox Quality AS accepts no liability claims that might arise from the use or non-use of the content of this press release.

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