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Sellers announced almost $5 billion of stock offerings after the close of trading Tuesday, with large shareholders taking advantage of rebounding indexes to offload stakes and companies raising money to shore up cash balances amid the coronavirus crisis. The sales are fueling worries that the nascent recovery in markets may be nearing its peak.
Building-materials maker Cie. de Saint-Gobain SA sold its holding in Sika AG for 2.6 billion Swiss francs ($2.7 billion) in the largest equity offering in Europe this year, accounting for more than half of last night’s bonanza. Semiconductor company Infineon (OTC:IFNNY) Technologies AG raised more than 1 billion euros ($1.1 billion) of fresh capital, the top shareholder in Italian payments firm Nexi (MI:NEXII) SpA marketed 781 million euros of stock and a German foundation pared its stake in Swiss train manufacturer Stadler Rail (SIX:SRAIL) AG by 210 million francs.
The huge volume of deals is “not a very good sign for growth and momentum stocks,” said Anthony Benichou, cross-asset sales trader at Louis Capital Markets in London. “It means that insiders see valuations as full, especially in the tech sector where we’re getting close to levels last seen during the bubble in 2000.”
Europe has seen a resurgence in sales of existing stakes after markets stabilized in April, mainly in companies that saw increased demand during lockdown measures as shopping habits changed. Most of these operate in the digital economy, like online food delivery platform Just Eat Takeaway NV and remote-access software provider TeamViewer AG. The Stoxx Europe 600 Index is up 26% from its mid-March low. The benchmark has gained three straight days this week on optimism about economies reopening as the coronavirus outbreak recedes and is heading for its highest close since March 6.
More than $15 billion has been raised on European exchanges this month alone by 84 companies through new share sales and such stake disposals, according to data compiled by Bloomberg, marking the busiest month for equity capital markets this year.
To be sure, the deluge is unlikely to slow down any time soon even if the market rally runs out of steam, some bankers say, because more companies will need to raise cash to shore up balance sheets hammered during the economic downturn or to improve their competitive positioning in after the lockdowns.
Some companies have lost so much of their market capitalization that they are virtually going to have to raise as much equity as in a new listing in the coming weeks, said Philip Noblet, head of U.K. investment banking at Jefferies.
And although sales of existing shares are fast catching up with fresh capital raising, bankers expect new share sales to dominate activity for the foreseeable future, which could be seen as good news for investors who are worried about insiders cashing out.
Though most of the overnight transactions on Tuesday came from more yield-focused sectors, some have growth company valuations. Sika trades at 34 times expected earnings in the next 12 months, its highest price-to-earnings ratio in at least 15 years, and nearly twice the ratio of 18 for the Stoxx 600 Construction & Materials Index.
Not everyone in convinced the flood of overnight share sales signals the stock market rebound from the March lows is losing steam. The surge is more likely to be a “mid-cycle recovery,” said Shaunak Mazumder, a global equities fund manager at Legal & General Investment Management.
(Adds details on activity in equity capital markets, comments from bankers)
©2020 Bloomberg L.P.
