Newcomers on the Stock Exchange accumulate losses in 5 years – 01/21/2024 – Market

Of the 74 companies that debuted on the Brazilian Stock Exchange since 2018, only 16 of them, or 21.6%, had a positive performance in relation to their price set in the IPO (initial public offering), according to a survey by Seneca Evercore .

Among those leading the way are construction company Cury, waste treatment company Orizon, fashion retailer Track&Field, port and maritime logistics operator Wilson Sons and jewelry retailer Vivara.

Among those that have seen the biggest drops since the IPO are the furniture company Mobly, the investor platform TC, the loyalty program company Dotz, the laser hair removal chain Espaçolaser and the logistics company Sequoia.

Some factors help to explain the statistics raised by Seneca and one of them is the fact that the last major window of opportunity for IPOs in the country occurred between 2020 and 2021, at a time of low interest rates that rocked the capital market.

Of the total number of companies that went public in the last five years, 68 of them (92%) were between 2020 and 2021.

And the sectors that dominated IPOs in the period are precisely those that benefit from lower interest rates: retail, with 14 companies in the sector going public; technology (also 14); and civil construction (11).

After the period of optimism on the Stock Exchange, these sectors were some of the most affected between 2022 and 2023, and this was reflected in share prices. Remembering that in the last two years Brazil went through a complete drought of IPOs and no company went public.

“We always have to remember that not only the companies that went public, but the entire Stock Exchange, back in 2020 and 2021, was in a different interest rate scenario. The interest in Brazil was 2%, the American interest was zero. When interest rates rise, all share prices fall”, says Felipe Thut, general director of Bradesco BBI.

Thut states that it is also necessary to look on a case-by-case basis to understand why the share price is lower today than at the time of the IPO. But it reinforces the atypical situation of the Stock Exchange during this period, marked by the effects of the Covid-19 pandemic on economies.

At the beginning of the pandemic, with sanitary isolation measures, economic activity was affected and inflation fell, which is why interest rates remained low. This increased the risk appetite of investors, who migrated a large part of their investments from fixed income securities to riskier assets.

With the resumption of the desynchronized economy in the world, demand increased, but supply was compromised by the mismatch in the global production chain.

The response of central banks to historic inflation in many countries has had a major impact on capital markets around the world, which are now regaining traction, with the beginning or expectations of the beginning of a cycle of falling basic interest rates in several economies.

“It took us a while to break the Stock Exchange record in the middle of 2021. This only happened now in December 2023. If you still think about the accumulated interest, or readjust this number for inflation, we still haven’t reached that stock market level mid-2021,” says Thut.

The Seneca Evercore study separated the companies that had an IPO since 2018 into four groups, according to the growth in revenue and net profit of each of them. In groups 1 and 2, there are 18 companies, and in groups 3 and 4, 19 companies.

Precisely the shares of companies in group 1, which had the best performance in the period analyzed, are those with a better share price today than when they debuted on the Stock Exchange.

In this group, there is a greater presence of companies in sectors linked to commodities and basic materials, those that delivered the best performance in their balance sheets. Many companies in these sectors benefited from the rise in international commodity prices.

In group 4, which contains the companies with the worst revenue and net profit performance, there is a greater presence of the technology, retail and construction sectors.

Daniel Wainstein, senior partner at Seneca Evercore, says that, in addition to the macroeconomic challenges, most of the companies that went public in Brazil were not prepared to enter the stock market.

He cites as an example Seneca’s own study, which showed that, of the 74 companies that had IPOs since 2018 and remain listed, only 13 performed above Ibovespa. “So, you can’t just blame the market, because they were worse than the market,” he says.

Wainstein says there is an expectation that a new IPO window of opportunity will open in the second half of this year, but companies need to analyze whether they are prepared to go public.

“This is the time when companies are starting to draw up prospectuses with the expectation of doing the IPO. And I invite businesspeople to reflect on these numbers and think: am I one of these 16 companies [que subiram após o IPO]?” he asks.

Wainstein says that many companies want to take advantage of windows of opportunity in the Brazilian capital market, which are periodic, and end up not entering the stock market maturely. And this ends up harming the businessman himself and the shareholders.

Until you have the strength to go public, Wainstein states that there are three alternatives for companies to raise capital. Firstly, grow with the company’s own cash. The second is to bring in a partner from a private equity fund, because he puts money into the company and stays there, unlike shareholder speculation.

“It’s the famous #tamojunto. If the company is doing well, he’s doing well. If it’s going badly, he’s with you”, he says.

And a third alternative is to take credit, as in operations that potentially convert debt into company shares. “Today there are a series of debt alternatives that are not short-term debt. Standard bank debt is not the best way for the company to make an investment”, he states.

According to another survey by Seneca, since 2018, the share of bank credit in the corporate world has decreased from 70% to the current 56%. This drop was accompanied by a large increase in debt options in the capital market, such as debentures and securitizations.

In 2018, for example, these alternatives represented 30% of the private corporate credit market, and in 2023 they represented 45%.

“This reinforces the thesis of a more diversified market with options for entrepreneurs”, says Wainstein.

Marcelo Azevedo collaborated