MONDAY MACRO: Companies going public may mean more than just a surge in demand for equity financing
A lot of companies have recently announced their plans to go public. This may not seem particularly relevant individually but may indicate something important collectively.
Today, we’ll be discussing what this may mean to the Philippine economy.
Philippine Markets Newsletter:
The Monday Macro Report
Powered by Valens Research
As we’ve talked about last week, real market valuations of PSE-listed companies are trending slightly above historical averages. While this indicates that stock prices are a little high, it also implies how investors have become optimistic about the business environment and the Philippine economy.
It’s not just investors that are signaling greater optimism, but management teams as well. A lot of companies have recently announced plans to do an Initial Public Offering (IPO).
As you might recall, IPOs are a way for companies to raise capital through the stock market in exchange for equity or shares in the company.
Yet beyond its basic aspects, IPOs can also be a signal of management bullishness as companies usually go public when they need funds for pursuing growth opportunities.
Companies that are only looking to go public to pay off debts generally struggle to attract investor interest, unless they substantially lower the value of their equity at the onset.
As a result, an economy is likely set to expand when there are a lot of fundamentally sound IPOs since businesses are gearing up for growth.
That said, the Philippines historically has had very few IPOs annually. In 2019 and 2020, the Philippines only saw 4 IPOs per year, significantly behind our neighboring countries.
However, the Philippines is now on track for 10 IPOs in 2021. The count increases to 11 if we include the backdoor listing of The Keepers Holdings, Inc. (KEEPR:PHL).
One such IPO is Manny Villar’s AllDay Marts, Inc. (ALLDY:PHL), which started trading earlier this month. The supermarket chain is aiming to sustain its rapid growth by expanding the company’s store count.
In addition, both Medilines Distributors Inc. (MEDIC:PHL) and Solar Philippines Nueva Ecija Corporation (SPNEC:PHL) are currently conducting their IPO.
Medilines Distributors will become the first pure-play healthcare IPO in the Philippines. Even though the medical equipment distributor has benefited from the pandemic, the company is still looking to expand its product portfolio further.
Meanwhile, Solar Philippines is set to become the first pure renewable energy company to go public in the Philippines. The company has yet to generate any revenue, but will use the IPO proceeds to develop its solar power plants.
Furthermore, Figaro Coffee Group, Inc. is scheduling its IPO near the end of the year. The company is looking to reopen and renovate its various stores, while keeping an eye on potential acquisitions.
Lastly, another Real Estate Investment Trust (REIT) is looking to go public. However, unlike the others, Citicore Energy REIT (CREIT:PHL) leases its land to renewable energy power plants, instead of office buildings.
From the list above, we see that though it has been mostly REITs for the first three quarters of 2021, the recent IPO applicants have come from various industries.
This diversity of companies is important as it makes the stock market more interesting for old and new investors. Other than the limited stock selections, one of the problems of the Philippine stock market is the disproportionate number of holding firms and real estate companies.
In addition, a more diverse set of IPOs means different areas of the economy are signaling optimism, not just one specific area. This may make a broad economic recovery more likely.
Nonetheless, as long as the Philippine stock market can sustain the growth in yearly IPOs across industries, it may be an early indication that the economy will not only recover but also outpace pre-pandemic growth levels.
About the Philippine Markets Newsletter
“The Monday Macro Report”
When just about anyone can post just about anything online, it gets increasingly difficult for an individual investor to sift through the plethora of information available.
Investors need a tool that will help them cut through any biased or misleading information and dive straight into reliable and useful data.
Every Monday, we publish an interesting chart on the Philippine economy and stock market. We highlight data that investors would normally look at, but through the lens of Uniform Accounting, a powerful tool that gets investors closer to understanding the economic reality of firms.
Understanding what kind of market we are in, what leading indicators we should be looking at, and what market expectations are, will make investing a less monumental task than finding a needle in a haystack.
Hope you’ve found this week’s macro chart interesting and insightful.
Stay tuned for next week’s Monday Macro report!
Philippine Markets Newsletter
Powered by Valens Research