Eurowag/IPOs: shaky foundations make this a buyer’s market

Comically named payment group Eurowag flirted with tragedy when shares started trading in London on Friday. Investors facing an energy crisis, rising inflation and growing political tensions were always going to be a tough crowd.

Eurowag’s initial public offering came a day later than planned, with the shares priced at 150p, 25p below the bottom of the original range. When trading commenced, shares fell a further one-tenth. That valued the company at just over £900m, little more than half the £1.7bn originally mooted.

Eurowag highlights the risk of pushing ahead with an IPO when market sentiment has turned negative. It did achieve its aim of raising €200m of new money to fund growth. It could have decided to pull the deal. That is what Icade Santé announced this week. The French healthcare property group postponed its IPO until the market improves. Fitness group iFit cancelled this week too, citing similar conditions in the US. The propensity of sellers to walk away is an indication of who are usually the winners from IPOs.

Eurowag shareholders will hope they have got a bargain. The 150p IPO price was at a multiple of 18 times 2022 ebitda. US peers such as Shift4 and Paya trade in the mid-to-low 20s. But even with Eurowag shares now trading at closer to 16 times, investors should be cautious. The business is a payments play on fuel sales to highly cyclical European haulage companies.

Studies have shown that, more often than not, IPO buyers end up losers in the long run. Deals in the London market this year will not help that image. Of the 15 IPOs that raised £150m or more this year, seven trade at an average 23 per cent below their offer prices. The underperformers include Deliveroo, the year’s largest. Dr Martens is teetering on the brink of going below its initial valuation.

Best performer Darktrace, up more than 200 per cent, fits the trend of punchy tech valuations. Like other top-performing IPOs this year, it is an unprofitable tech business.

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