The ebullient investor reaction to German hydrogen company Thyssenkrupp Nucera [ETR:NCH2] shows that Europe’s IPO market is open, but perhaps only for green issuers.
In the spirit of this summer’s Ashes series, if ECM Pulse were to compare Europe’s IPO market to an innings of test cricket, then Nucera’s listing is the middle-order batsman who finally banked a decent score after a session of disappointment.
It’s figurative partner at the crease last week, high-growth emerging market payments and FX company CAB Payments [LON:CABP], slumped 7.5% below its IPO price in the first two days of trading last week.
CAB was unfortunate to price in a bad week for equities with benchmarks falling mid-week over interest rate fears.
“It was a shock to print into those markets,” said a source close to the deal. “It’s a shame as we had a good book with a lot of long-only demand.”
Nucera fared better when it began trading by Friday, July 7. The company ended its first day 17.6% up, in a stark contrast to the fortunes of CAB, and any other debuts of large European IPOs so far in 2023.
“It gives us confidence that IPOs can work without it being some emblematic name like Porsche,” said a source close to the deal.
ECM bankers largely agree on the differentiation being given to green stocks and point to the IPO of EuroGroup Laminations [BIT:EGLA], the Italian manufacturer of components for EV engines, as another example of green and energy transition stocks performing while others have not.
Although initially trading down, EuroGroup is now the only other major IPO above offer price this year, alongside Nucera.
Some think investors are being short-sighted, though.
“Nucera is an easy green equity story, but I would say that forex and payments have also been a significant and topical issue and especially for the coming years when these networks will be vital for emerging markets,” said the CAB source.
Now the market waits to see if Romania’s Hidroelectrica can continue the green IPO momentum when it begins trading on Wednesday.
A different sort of book
Nucera was able to bring in a swathe of investors that do not normally invest in European IPOs, as reported by this news service last week.
One of the two named cornerstones, alongside Saudi Arabia’s PIF, was BNP Paribas Energy Transition Fund, which took EUR 85m worth of shares in the deal.
BNP Asset Management specifically saw the IPO as a chance to increase its penetration in Europe’s green energy market, according to a second source close to the deal. This incremental demand not normally seen in IPOs drove more interest into the book, added an investor following the deal.
An IPO grants ESG funds an opportunity to invest at scale, nigh-on impossible in the open market given the scarcity of pure-play large European green energy stocks.
Buyers will flock to liquidity events in the sector, be they IPOs like Nucera, or block trades. While all IPO sellers try to get specialist funds involved in new listings, that isn’t as easy a sell as with green energy stocks, noted one of the sources.
The BNP Paribas Energy Transition fund said Nucera is just one of several large holdings “across the energy transition universe” with the team also being the largest institutional investor in the green hydrogen company Plug Power in the US and the fuel cell technology company Ceres Power in the UK.
“We believe the hydrogen economy will be the fastest growing energy transition technology, and several approaches to delivering solutions will co-exist and be mutually reinforcing,” said Ulrik Fugmann, co-CIO of the Environmental Strategies Group at BNP Paribas Asset Management.
Thyssenkrupp previously did not respond to requests on the investor make-up in its IPO book.
Into the tail-end
There are other green-IPO candidates that could target 2H should market conditions allow. French hydrogen fuelling solutions manufacturer Atawey, biogas producer Evergaz and hydrogen-powered taxi company Hype have all been reported as IPO contenders.
In Spain, Calvera Hydrogen is reportedly seeking an anchor investor as part of wider IPO plans.
Thyssenkrupp had to take a big cut in its valuation hopes to get Nucera across the line, despite its sectoral advantages. Other issuers won’t be so flexible.
On Monday, Intillion, the lithium-ion business owned by Germany-based manufacturer of lead-acid batteries Hoppecke announced a postponement of any IPO plans until 2024, citing valuation concerns.
This year’s most high-profile ESG IPO candidate, Renault’s [EPA:RNO] electric vehicle division Ampere, is also unlikely before 2024.
There is also no guarantee that markets will remain conducive. Sources speaking to this column last week said they feared possible sell-downs into year-end.
Markets saw a glimpse of that last week with a brief sell-off in reaction to strong US jobs data, which hinted at more interest rate rises this year.
The CME’s Fed Watch tool shows an expectation of one last US rate hike in July. If US economic data shifts the narrative to more hikes, then equities are likely to sell off again.
As with cricket, this year’s IPO innings can change very quickly, and there is a lot of the match left to be played.
Keep up to date with all ECM deal activity, including secondary block trades, with Dealogic’s market report.
