Brazilian IPOs. Good deals or not?

Most companies that went public in the last five years have declined in value on the stock market

Of the 98 companies that issued an IPO from 2005 to today, 51 are in the red; the company with the highest profitability increased in value by 452%

Yolanda Fordelone, from O Estado de S. Paulo 

SAO PAULO - The investor who bought shares in an IPO (Initial Public Offering) over the last five years and kept the stock in his or her portfolio has a high chance of suffering a loss. A study from Economática shows that of the 98 companies that went public betweeen 2005 and 2009, 51 of them had a negative performance since the beginning of trading on the Sao Paulo Stock Exchange (Bovespa).

Motivated by the long growth cycle the Bovespa went through, many companies went public through IPOs. Some, say specialists, did so at the wrong time. "2007, especially, was a period of intense demand from investors and a large supply from companies, almost a bubble phenomenon, in which everyone believed in a quick profit in the first few days after the IPO was issued", recalls Rogerio Sobreira, finance professor at FGV University.

"Everyone expected a bigger return in revenue, sales, etc, that didn't ever happen," says the head of analysis of Link Brokerage, Andres Taihei Kikuchi.

Difficulty

The crisis that hit the stock market soon afterwards, in 2008, caught many companies unprepared, that had issued IPOs expecting the market to continue to climb. Of the 59 offers in 2007, 39 are in the red. In some cases, the current price is more than 80% less than the introductory price.

Investors haven't forgotten the large number of stock offerings during the period and the high percentage of stocks that still haven't recovered. "Many people have grown tired of these operations and the investors perceived that, much of the time, they cannot effectively evaluate the company because they don't know it well enough," says the head analyst at Spinelli Brokerage, Kelly Trentin.

"Makes no sense"

One of the investors who had a frustrating experience was the 33 year-old physician Bruno Coutinho, who last year purchased shares of Visanet (which is now named Cielo).

After the IPO, the stock moved in price with no defined trend and today is worth 2% less than the original price. "Bill payment with credit cards is growing more every day. Plus, the stock had a great performance in its US debut. It doesn't make sense that the price went down," says the investor who decided to sell the stock a little over a week ago.

The decrease in the appetite of investors has been felt by the most recent IPOs. While in the past, IPOs would easily attract more than 10,000 investors, offers this year haven't attracted more than 3000 people, according to the Bovespa benchmark. "The poor IPO performance sticks in the memory of the investor", says the Insper finance professor, Andrea Minardi.


* Translated and reprinted without express written consent -- but hey, it was a free translation. Original article here.

Monday bullets

• Mary O'Grady of the The Wall Street Journal caused some commotion in Brazil by not agreeing with all the rosy forecasts of Brazil's economy in her article entitled "Curb Your Enthusiasm for Brazil". Despite creating billionaires like Eike Baptista, who rose to 8th place on Forbes list of the world's wealthiest individuals, she tends to believe that his story is just another example of the "same old Latin corporatism" which favors a small, select group with special ties to the government. She argues that true reform hasn't taken place and that there still exists a massive amount of bureaucracy, a stifling regulatory and tax structure, and an increase in protectionism --all which do more harm than good to small and medium-size businesses looking to grow. In retaliation for this critique, President Lula has imposed a 25% reading tax on the US based business newspaper.

• The Folha Online reports that the Sao Paulo Stock Exchange (Bovespa) hit its highest level in almost two years today, aided by good news from the US economy. Today's closing at 71,289 points leaves it remarkably close to the all-time high of 73,516 set in May of 2008. Investment fund operators expect the Bovespa to end up between 80,000 and 81,000 by the end of the year.

• Exame posted an interview with Karen Peetz (in Portuguese), CEO of Financial Markets and Treasury Services for BNY Mellon. Mrs. Peetz, along with the rest of investment world, is bullish on Brazil and believes it will grow more than 5% this year - regardless of this year's presidential election results.  She added, "China is always in the news, but I think Brazil is the best positioned among the BRIC countries (Brazil, Russia, India and China). It's democratic, it has a mature stock market and a reliable legal system." As a side note, I like BNY Mellon because they helped sponsor a recent American Society softball tournament.