Most tech companies ended the first quarter of 2021 well. You benefit from the optimism about the economic recovery and the trend towards digitization, says Martin Moeller, Co-Head for Swiss and Global Equities at UBP. The technology sector, as the largest constituent in the S&P 500, made a significant contribution to the increase in earnings per share in the index.
Unfortunately, fintechs have been undergoing the shift away from growth to value stocks since the end of last year. Investors also took profits. They did worse than the overall market. For example, the “electronic payments” segment was one of the losers in the corona pandemic. Because the volume of cross-border payments has been slowed down by the travel restrictions. The capers in cryptocurrencies have also recently brought volatility to the tech and fintech markets.
Technology stocks benefit from long-term trends
However, the underlying long-term structural developments persist and were in part accelerated by the crisis. One example is the rapid growth of e-commerce. This and the desire for contactless payment have increasingly led to electronic payments. Payment companies, for example, have been able to significantly increase the number of users.
As a rule, companies with a large proportion of recurring sales can develop attractive value creation profiles in markets with high entry barriers. This should lead to excess returns in the long term.
“Despite the volatility caused by their economic sensitivity, we continue to see considerable potential for value growth in both segments,” said Möller. In this respect, the recent decline offers opportunities to take advantage of the sustained dynamic growth in tech and fintech companies.
IPOs with high fluctuations in valuation
In the past, the fintech industry reacted much more strongly to the macroeconomic environment than the overall market. This increases the uncertainty with regard to the price range in an IPO, emphasizes Bettina Baur, Senior Portfolio Manager at UBP.
“If the future potential for added value is more difficult to assess due to the market environment, this can have a significant impact on the valuation or the price that investors are willing to pay for the IPO,” says Baur. Ideally, however, a fintech is already profitable at the operational level at the time of the IPO or can at least show a plausible path to profitability. “It should benefit from long-term structural growth trends and have a scalable, difficult-to-replicate business model,” says Baur.
UBP, headquartered in Geneva, specializes in asset management for private and institutional investors. It employs over 1,800 people at over 20 locations worldwide. At the end of 2020, the assets under management amounted to 147.4 billion Swiss francs.
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