Brazilian Companies’ Initial Public Offerings’ Shares Rise by up to 185 Percent

RIO DE JANEIRO, BRAZIL – Record after record, the IBOVESPA exceeded 117,000 points this week, accumulating a return of over 33 percent for the year. But those who invested in companies that went public in 2019 had, in most cases, a return above the main stock index.

Of the seven Brazilian companies that went public in Brazil and abroad, only BMG bank saw a drop in its shares in the period. All the other stocks accumulate valuations above their main reference indexes: the IBOVESPA, in the case of Brazil, and the S&P 500, in the case of the United States.

A comparison between the indexes is significant because companies made their stock offerings on different dates.

The newcomer that most appreciated this year was the sportswear retailer Centauro (CNTO3), which rose 185 percent since it went public in April. In the same period, the IBOVESPA increased by 24 percent. Since its IPO, the retailer has shown accelerated growth in sales in physical stores and in e-commerce, which encouraged investors.

“We continue to see strong profit growth for Centauro in the next quarters and years if the optimal execution of its growth plan is confirmed. The valuation levels of the consumer sector in Brazil are stretched and Centauro shows up as a “less stretched” share in P/E [price/profit],” said Credit Suisse analysts in a report released last month.

Following Centauro, the second-highest valuation since its IPO is Neoenergia (NEOE3). Its shares increased 57.5 percent since the IPO in June, compared to the 16 percent accumulated by the IBOVESPA in the same period.

The list of the highest hikes is followed by jewelry manufacturer Vivara (21.8 percent since October 10th, compared with IBOVESPA’s 15.11 percent) and retailer C&A (10.8 percent since October 28th, compared with BOVESPA’s 9.2 percent).

On the downside, BMG bank – which held its IPO in late October – disappointed investors in its first disclosure of results after going public. The bank’s shares (BMGB4) fell by 17.4 percent, while the IBOVESPA appreciated by 8.3 percent in the period.

With the decrease, the BMG announced on December 11th, the repurchase of approximately ten percent of the total outstanding shares until December 2020. According to the bank, the aim of the repurchase is to improve shareholders’ interest.

The Brazilian companies in Nasdaq

Of the seven Brazilian company’s public offerings this year, two have occurred in the United States and have risen sharply since then. The education company Afya debuted at Nasdaq and its shares have increased 46.8 percent since then. The S&P 500 index rose 8.9 percent in the same period, while Nasdaq’s main index, the Nasdaq Composite, appreciated 10.7 percent.

XP Inc, which went public on December 11th, has accumulated an appreciation of 43.20 percent in its stocks, against the 4.2 percent increase in Nasdaq Composite and 3.1 percent in the S&P 500.

Record year for stock offering

Adding up IPOs and follow-ons (stock offerings from companies already listed), 2019 was the best year for operations of this type in the history of the Brazilian Stock Exchange. Considering the follow-ons of Marfrig, Unidas and Le Lis Blanc – the last offers of December-, the volume of the B3 share issues totaled R$89.6 billion.

The largest volume so far had been recorded in 2007, at R$70 billion. The comparisons disregard the mega capitalization undertaken by Petrobras in 2010, in the amount of R$120 billion, which distorts the historical series.

However, in the number of transactions, 2007 still holds the record. That year, 76 companies offered their shares, while in 2019 there were 42 companies.

A new record in 2020?

With the stock market heating up, Gilson Finkelsztain, the B3’s CEO, said in interviews that the stock market expects a new record in terms of public offerings in 2020.

Four companies have already registered their applications to go public with the Securities and Exchange Commission (CVM): the technology company Locaweb, the Companhia de Água e Esgoto do Ceará (“Ceará Water and Sewage Company”) and the construction companies Mitre and Moura Dubeux.

Source: Infomoney