Connect with us

IPOs / FFOs

US stock rally drives ‘ludicrous index’ towards dotcom era heights

Published

on


Wall Street exuberance barometer charges back towards dotcom boom heights

This article is part of the FT’s Runaway Markets series.

Booming stock prices have inflated one measure of Wall Street exuberance back towards levels seen just before the dotcom bubble burst more than two decades ago.

Shares in 79 companies listed on US stock exchanges have more than doubled in the past three months. These companies — all worth more than $500m — trade at a price-to-sales ratio higher than 10, more than three times the ratio across the benchmark S&P 500 index.

Between 2011 and the start of the sell-off in March that preceded the market rally, that figure only ever crept as high as 13. At the height of the dotcom mania in 2000, 120 companies shared the same characteristics, according to Bespoke Investment Group.

The rise in Bespoke’s “ludicrous index” coincides with rising concern among some investors over what they see as frothy conditions in the world’s biggest equities market. The S&P 500 has soared 75 per cent from its March low even as the country battles through successive surges in coronavirus and an uneven economic recovery.

Well-known investors including Jeremy Grantham have warned that a bubble is brewing in US markets, as stocks race higher and listings of blank-cheque companies, or Spacs, boom.

Runaway Markets

In a series of articles, the FT examines the exuberant start to 2021 across global financial markets

David Kostin, chief US equity strategist at Goldman Sachs, said on Friday that one of the most frequent questions asked by clients of the Wall Street bank is whether US stocks are trading in “bubble” territory.

He said that while the overall market appears to be “reasonably” valued, “pockets of the market have recently demonstrated investor behaviour consistent with bubble-like sentiment”.

The list of highly valued companies that have ascended into Bespoke’s ludicrous index include Farfetch, the $21bn online luxury goods retailer, and Nio, the $97bn Chinese electric vehicle maker that is expected to report a loss of $769m this year on $2.5bn of revenues. Tesla, which has rallied 99 per cent over the past three months, does not make the cut.

Investors have justified the valuations on many fast-growing companies on rock-bottom interest rates, including negative real yields in much of the developed world. Those negative yields have made the prospect of far-off profits more appealing than they would be if interest rates were higher than where they are today.

Howard Marks, the high-profile distressed debt investor, recently told clients that the equations often used to value companies “were not built to handle high-double-digit growth as far as the eye can see, making the valuation of rapid growers a complicated matter.”

Alex Ely, Macquarie Investment Management’s chief investment officer for US growth equities, added that price-to-sales metrics have for years been the way to value faster-growing companies.

“If you use price-to-earnings [ratios] as your only metric you would never have owned Microsoft or Amazon over the last 30 years,” he said. “P/E is a dated metric. This has happened before in history, back in the 40s and 50s book-to-bill was the only thing you used to value a company . . . and then we moved to P/E in the 80s and 90s.”



Source link

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

IPOs / FFOs

Oscar Health raises $1.4bn from stock market listing

Published

on

By


Oscar Health, the health insurance company co-founded by Joshua Kushner, raised more than $1bn in an initial public offering that topped the company’s marketed price range, in a sign of investor confidence despite political uncertainty over the future of US healthcare.

The New York-based company priced its shares at $39 each on Tuesday, according to a statement, raising about $1.4bn. Oscar would have a market capitalisation of $7.9bn at that price, based on the total number of shares outstanding.

Oscar previously said it expected its listing share price to range from $32-$34 before increasing the range to $36-$38 on Tuesday. Coatue Management, Dragoneer Investment Group and Tiger Global Management — existing investors in the company — had indicated interest in purchasing up to $375m of shares in the offering.

The move demonstrated that investors are relatively unfazed by potential headwinds for the company. President Joe Biden has vowed to reform the US healthcare system and the Supreme Court is considering a decision on the fate of the Affordable Care Act, known as Obamacare, both of which could pose significant challenges to Oscar’s operating model.

Oscar was co-founded in 2012 by Mario Schlosser and Joshua Kushner, the brother of Jared Kushner, Donald Trump’s son-in-law. Kushner’s venture firm, Thrive Capital, owned a stake that would be worth $1.3bn at the offering price and give it 75.9 per cent of the company’s voting power.

Oscar, which bills itself as the first health insurance company “built around a full stack technology platform”, has more than half a million paying members and offers its insurance plans in 18 US states.

But the company has struggled to become profitable. In 2020, it recorded widening losses of more than $400m on revenues of about $460m, a decline from almost $490m of revenues the previous year.

Oscar’s IPO came on the heels of several other public market debuts for “insurtech” groups in the past year, which fuelled an already strong run of stock market listings.

Clover Health, which uses data analytics to connect senior citizens to Medicare Advantage plans, merged with a special purpose acquisition company, or Spac, sponsored by former Facebook executive Chamath Palihapitiya in a $3.75bn deal in October. Lemonade, which sells rental, homeowners and pet health insurance, went public last summer in what turned out to be one of the year’s most successful stock market debuts.

Oscar is highly sensitive to any changes to Obamacare, which lawmakers have wrestled over since it was written into law in 2010. Almost all of the company’s revenue comes from plans subject to Affordable Care Act regulations, according to its prospectus.

President Joe Biden’s healthcare programme would leave Obamacare largely intact, but would make some adjustments and add a public option for all Americans. The Supreme Court, meanwhile, is expected to announce a decision on yet another review of the Affordable Care Act in the coming months.

Goldman Sachs, Morgan Stanley and Allen & Co led the offering.



Source link

Continue Reading

IPOs / FFOs

Spac led by tech founders targets Europe’s unicorns for US listings

Published

on

By


Tailwind International, the New York-listed special purpose acquisition company, is searching for European tech unicorns to list in the US as part of plans to bypass EU and UK markets and build a multibillion-dollar franchise of Europe-based businesses.

Tailwind, which says it is the first Spac where a group of European tech founders will focus on investing in the region’s tech companies, raised $345m on the New York Stock Exchange last month with the intention of taking a European tech group public in the US. 

Tommy Stadlen, co-founder of venture capital fund Giant and the Spac’s chair, said: “We will bring one of Europe’s iconic technology companies to the US public markets.”

Pierre Denis, former Jimmy Choo chief executive and Coty board member, is the chief executive. Nathalie Gaveau, co-founder of French ecommerce site PriceMinister, is president and other sponsors include the co-founders of luxury online retailer MatchesFashion and German meal kit delivery business HelloFresh.

Philip Krim, the co-founder of online mattress start-up Casper, is a co-founder.

The number of Spacs — which list on the stock exchange before they find a business to buy — has grown rapidly in the US in the past few months as investors have piled in with the hope of acquiring stakes in promising target businesses.

In February alone a total of 174 Spacs filed or priced for expected gross proceeds of $56bn, according to data from FactSet.

So far this year, there have been more than 180 Spac filings, against last year’s total of nearly 250, which was the highest in five years.

European tech groups, including the UK’s used car site Cazoo and health app Babylon, have already held talks with US Spacs

The Tailwind team is planning to launch a series of Spacs to build out the franchise. The minimum size of any target would be $1bn, Stadlen said, ranging up to $15bn, with the potential to raise additional equity.

He said the UK would be a focus owing to the larger numbers of promising tech companies, alongside France, Germany and the Nordic nations.

In a sign of booming demand among investors, Tailwind increased the size of the listing from $250m to the maximum of $300m, and also exercised the “greenshoe option” that allowed its underwriters to buy up further shares, taking the total to $345m. People close to the process said there was $3bn of demand for the initial public offering. 

Stadlen said Tailwind would have an advantage in being run by tech founders — pointing out that operator-led Spacs outperformed peers — and that a “multi-Spac” platform was more likely to succeed because of access to resources.

Tailwind has already had conversations with European venture capital firms and founders to discuss potential US listings of their businesses, he said.

He added that European exchanges had been unattractive to tech listings because they offered lower potential returns. Only two have listed in Europe so far this year, according to Refinitiv. A US Spac offers founders access to US markets where there were “more capital and better valuations”. 

Bankers in London are keen for the UK government to change the listing rules on Spacs to compete with New York and rival cities in Europe. At present, a Spac acquisition in the UK is considered a reverse takeover and the shares are suspended. Trading cannot resume until a deal prospectus is published, for which there is no specified deadline, so investors who want to sell their shares can find themselves locked in.

Bankers in London have talked up Amsterdam as Europe’s hub for Spacs, while German venture capitalist Klaus Hommels launched a European tech-focused Spac, Lakestar, in Frankfurt last week, the first on the Xetra market in a decade.

“We are open to Spacs as a product and have all the conditions in place for more of these to go public in Germany. They have been the go-to topic in most calls with issuers, banks, and lawyers over the past six months so we expect Spac listings to accelerate in Europe,” said Renata Bandov, head of capital markets at Deutsche Börse.

“In the post-Brexit environment, UK-listed companies cannot currently passport their prospectuses into the EU so we anticipate a higher influx of dual listings.”



Source link

Continue Reading

IPOs / FFOs

Rocket Lab/Spire Global: Spacs, the final frontier

Published

on

By


Life sometimes imitates emojis. Social media stock tipsters are fond of littering posts with rocket symbols. Rocket Lab, which is floating at a $4.1bn enterprise value, makes the real thing. It was one of two space-related businesses to join the market via special purpose acquisition companies (Spac) on Monday, as the surge in these listings continued.

Just two months into the new year and Wall Street has raised a staggering $58bn through 188 blank cheque vehicles, according to Refinitiv. With hot money appearing to outweigh the supply of merger candidates, sponsors are howling to the moon for deals.

Rocket Lab launches smaller satellites into space. Its celestial twin was Spire Global, a satellite data group that is combining with a Spac at a $1.6bn equity valuation.

Like many recent Spac companies, Rocket Lab and Spire are justifying their valuations with lofty sales and earnings growth projections. Rocket Lab, which generated $35m in revenues last year, said it expected to pull in more than $1.1bn in 2026 and become cash flow positive in 2024. Spire, with just $28m in sales in 2020, is forecasting $900m in revenue by 2025 and positive cash flow in three years’ time.

Tesla founder Elon Musk and his SpaceX rocket company have reignited investor interest in US space companies. Annual revenues from space-related business — at present worth $350bn — could almost triple in size by 2040, according to Morgan Stanley.

SpaceX was reportedly valued at $74bn by its latest private funding. Shares in Virgin Galactic, Richard Branson’s space tourism company, have almost doubled since last September to give it a $9bn valuation, even as the group reported a $273m loss in 2020.

Space companies are a moonshot borne aloft by the rocket fuel of cheap money. That momentum trade has more to recommend than some others, such as fledgling electric vehicle companies. Both Rocket Lab and Spire have proven technologies to accomplish highly demanding tasks. This really is rocket science. But like space exploration itself, these investments are only for the brave.

If you are a subscriber and would like to receive alerts when Lex articles are published, just click the button ‘Add to myFT’, which appears at the top of this page above the headline



Source link

Continue Reading

Trending