Poland’s newest stock listing was a roaring success on its first day of trading, taking over as the biggest stock on the country’s main exchange and adding almost two-thirds in market value.
Allegro.eu SA shares jumped 63% to close at 70 zloty in its first trading session in Warsaw on Monday, lifting the company’s value to 72 billion zloty ($19 billion). The firm and its private-equity investors priced the IPO at the top end of a marketed range, cashing in on soaring demand for digital sales as consumers stuck at home indulge in virtual retail therapy.
“Allegro provides high exposure to the fast-growing Polish e-commerce market and draws comparison to Amazon, which may be an attractive investment option for foreign investors, who took up most of the shares in offering,” Jaroslaw Niedzielewski, head of investments for Investors TFI mutual fund, said in an email. “But the scale of the price jump is a shock.”
Before the trading start, analysts at Bernstein estimated Allegro’s enterprise value to earnings before interest, taxes, depreciation and amortization to be about 37, above the likes of Amazon.com Inc and Alibaba Group Holding Ltd, but below MercadoLibre Inc. and European fashion retailer Zalando SE, according to data compiled by Bloomberg.
Trading volume on Allegro shares reached about 4 billion zloty, a record daily volume for single stock in Warsaw. It stood for almost 80% of total equity traded value on the exchange on Monday.
“Wide gains are a combination of a general surge in tech stocks this year and emerging markets e-commerce opportunity, which long-term is a good place to be,” Bernstein analyst Aneesha Sherman said in email. Even so, “such a move may soften after as there are several question marks about growth and margins.”
The company is betting on the continued expansion of online shopping in Poland, a market of 38 million people and one of the European Union’s most resilient economies. Allegro is touting lower fees, a loyalty program with free deliveries, and high number of local merchants to fend off global competition. Amazon.com Inc. is still selling its products to Poles from Germany, while China-based AliExpress relies on lengthy shipping processes.
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“Yes, there was component of surprise,” Allegro’s Chief Executive Officer Francois Nuyts said in an interview with Bloomberg TV when asked about the price jump.
During the opening ceremony at the Warsaw bourse, CEO also pledged more investment and hiring. A new wave of coronavirus infections in Poland may end up benefiting the firm, further accelerating the switch to online purchases. In the first half of the year, the company’s sales and net income rose about 50% on year as the platform became the premier selling venue for many smaller shops cut off from their clients during lockdown.
Bernstein expects Allegro to have plenty of opportunities to expand to broader Eastern European markets, which are more fragmented and easier to scale up. Still, the company hasn’t announced such plans, saying that it wants to keep its focus on Polish consumers. Even so, the CEO said he’s “reasonably convinced” the firm will reach customers outside of Poland eventually.
Allegro is now the country’s largest listed company and will be added swiftly to major equity indexes. Inclusion in Warsaw’s WIG20 benchmark was announced on Monday, and will happen after the market closes Wednesday. Its anticipated addition to MSCI gauges at a later date may also fuel demand. After Monday’s surge, Allegro is worth more than twice the Polish benchmark’s current leader, game developer CD Projekt SA.
“Local investors saw Nasdaq-level valuations in an IPO for the first time,” Investors TFI’s Niedzielewski said. “But their allocation is much below expected weight of Allegro in WIG20 index, which probably triggers more buying.”
While fellow online shopping emporium THG Holdings Ltd. posted one of the best first-day pops in London for at least two years in September, floats on European exchanges have fared less well over the past two weeks. Military supplier Hensoldt AG, Russia’s state-owned tanker operator Sovcomflot OAO, Lithuanian electric utility AB Ignitis Grupe, camper-van maker Knaus Tabbert AG and China Yangtze Power Co. all slumped in their debut sessions.
The Warsaw Stock Exchange delayed Allegro’s opening by 15 minutes to avoid any potential overflow of its trading system, as a substantial number of shares in the IPO were sold to a fragmented group of more than 36,000 retail buyers. Allegro’s private equity owners — Cinven, Permira and Mid Europa Partners’ funds — remain the controlling shareholders in the platform and pledged not to sell more shares within 180 days following the debut. Allegro will publish third-quarter earnings on Nov. 26.
(Updates with CEO comments in 7th paragraph, index addition in 10th paragraph.)
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