Looking through the IPO window

Paris based boutique Skylar’s fund Origin invests in initial public offerings globally.

Europe’s IPO market took on new impetus in the first half when Denmark’s Dong Energy, specialist in offshore wind turbines, listed on the Copenhagen stock market in early June in an offering valued at DKK98.2bn (€13.2bn).

For the Origin fund, launched by Skylar in 2010 and managing €13m in assets as of June 2016, this is the type of event it looks to as it seeks to pick the best IPOs in over 60 countries.

The portfolio consists of 30 to 40 stocks that can be held from the first day the company is listed to five years post-listing. However, it tends to focus on the two first years that any stock is available.

Investments are only made in IPOs of companies whose valuation exceeds $200m (€176.7m).

Origin’s strategy relies on the team’s pre-IPO fundamental analysis encompassing research worldwide as well as discussions with banks, analysts and the management of the companies being listed.

IPOs have encountered a tough start in 2016 as volatility hit markets, says Origin’s fund manager Arnaud Morvillez (pictured). Despite a net slowdown in new listings during the first quarter, he assesses the period brought good quality IPOs to market.

“In Q1 2016, if we consider IPOs above $100m, a total of 31 have been registered worldwide, raising around €8.5bn of inflows, while Q1 2015 saw 72 companies being listed, drawing €28bn of inflows,” he says.

As Asia was the most active region in terms of first quarter IPOs, Origin took part in the listing of several Chinese regional banks.

“IPOs’ flows move from one area to another. We follow the flows which dictate the sectorial and geographical investments of the fund,” Morvillez underlines.

“Momentum remains good as the IPO window reopened in April, and we have seen a massive release of IPOs worldwide since then. We do not have concerns for the rest of 2016, all things being equal. If, for instance, the Brexit happens it will obviously impact negatively the IPO market,” the fund manager says.

2015 saw waves of tech and biotech listings that have driven the US and European IPO small cap markets.

“Biotech equity rallies suggest there is a strong appetite in markets for equities, as investing in biotechs remains the riskiest bet,” Morvillez says.

The fund manager adds that a trend in the tech IPO wave is that ever more Chinese technology firms get listed on the Nasdaq, choosing it “because that’s where markets have the culture of technology”.

Morvillez sees a positive evolution of the European IPO market that was “almost closed between 2008 and 2013” before a turnaround at the end of 2013.

Last year was the first since the global financial crisis in which the number of European IPOs exceeded those in the US.

Currently, he favours IPOs from the consumption sector in Europe, on the basis of regional recovery and macro figures. Stocks from the furniture chain Maisons du Monde, the property network Kaufman and Broad, and the Spanish leisure park operator Parques Reunidos were recently included in the fund.

Morvillez calls fitness a good spot in the IPO market as he believes the sector can benefit from the recovery in Europe.

“Italy’s Technogym has grown well. We liked it a lot. Other firms such as Dutch’s Basic-Fit are planning an IPO.”

Another listing the fund manager is looking at closely is that of Dutch insurer ASR Nederland NV for which the Dutch government has been seeking to raise €1.32bn.

“If the stock is well priced, that will be good input in the Netherlands. I believe this IPO will be a great success,” he says.

This article was first published in the July/August issue of InvestmentEurope.

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