Investing in Baltic IPOs — the golden lottery ticket?

All around the world, either it would be USA, Asia and in Baltics too — IPOs (Initial Public Offering) are usually followed by hype and spike in public’s attention and in some cases even leading to a mania (e.g. dot-com bubble). Although Baltic market can not be proud of many IPOs, still we can find some deals done in the past years. On a positive side it can be said that Baltic investor is rather on a passive side and not so keen to vote with his money for every upcoming IPO opportunity but rather calculates if the IPO deal is too expensive or not for him (e.g., if we remember the outrageous Citadele Bank offer which fall through). On the other hand, consideration of solely valuation level that is on the IPO day, and neglecting other aspects such as company’s future development possibilities is not entirely right.

Benjamin Graham wrote that ‘’Stock-picking is an art and not science’’.

So, investing in IPOs is the arts’ highest form, which borders with good dose of fortune-telling.

In this article we wanted to see how well stocks performed price wise after an IPO (dividends are not included in calculations).


Figure 1: IPOs in Baltic Stock Market

Source: Alphinox, NASDAQ Baltic


We have collected the sample of 19 companies, which have made an IPOs on Baltic equity market and which are having decent trading volume.


We looked at how well the stock price performed during the last 6 months, 1 year, 2 years, 5 years and since inception after IPO in the stock market, comparing the performance also with NASDAQ OMX Benchmark Price Index. Therefore, we could find out what historically would be a better idea: to invest money in IPO and hold it till today or to theoretically invest in the Baltic market index (NASDAQ OMX Benchmark), which consists now 26 companies.


How to read the table? Lets take Lithuanian milk processor and dairy foods producer — Vilkyškių Pieninė as an example. We can see that company’s stock in 6-month time period after IPO lost 11.1%, while Since Inception (Since IPO) it has made positive return of 36.2% for shareholders (and its not even counting in dividends). Also if we compare Vilkyškių Pieninė performance with Benchmark we can see that stock outperformed it by 50.9%. So, depending on correct timing Vilkyškių Pieninė has been a good investment.


We have noticed that certain investor ‘’hype’’ sentiment is present after IPO as stocks’ 6 months returns after an IPO are marked by overall growth.

This investors ‘’hype’’ and willingness to invest declines after year 1, which results in worse stock performance. If all willing investors have bought the stock in the first months of an IPO who will be the new ones buying it from the later sellers and support the stock’s price? Therefore, an idea to buy companies stock on IPO and flip them after a couple of months can bear some fruits for speculative investor.


We can also see that investing solely in IPOs might translate into an underperformance as compared with investing in the Benchmark. The best illustration appears to be SAF Tehnika’s IPO. Company’s stock price could be the worst example of IPO from investor’s viewpoint (though SAF Tehnika, although do not have written dividend policy, very often rewards its shareholders with very good dividend yield — the last paid dividend was 0.67 EUR per share in the end of 2017). The company versus Benchmark lost 140.7% and 85.6% in absolute since IPO. Also, last Christmas for SAF Tehnika shareholders was not so merry as previous one, as during AGM it was decided not to pay out any dividends for financial year 2017/2018 due to the poor financial results.


Figure 2: The Roller Coaster — SAF Tehnika Stock Price since IPO (Dividends not Included)


Source: Alphinox, NASDAQ Baltic


In the end, we must conclude — if investor decides to invest in an IPO and hold position for longer period, then he should carefully make his homework to analyze the company’s financial position, its future growth perspectives, the trustworthiness of the management team and governance system transparency. And certainly should not invest all his money in one stock but think of the well-diversified portfolio.

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