An application can be submitted until October 11 to purchase the shares of the company “DelfinGroup” (the company is known for the network of the pawnshop “Banknote”). DelfinGroup plans to start listing its shares on the Nasdaq Riga stock exchange. Price – 1.52 euros per share, a total of up to 8.4 million shares are offered, as well as it is promised to pay at least 50% of the profit in dividends on a regular basis. Does it make sense to buy?
Unlike Estonia and Lithuania, where more than ten new issuers have appeared on the stock exchanges since the crisis of 2009, in Latvia such delisting for the local capital market is a big event.
Why is it interesting
First of all, it is still a rarity for Latvia.
Second, the previous local IPO (Initial Public Offering) has ultimately proved to be quite successful for investors. Cosmetics manufacturer Madara Cosmetics went public on the Riga Stock Exchange four years ago, in 2017. At that time, these shares could be bought for 6.25 euros per piece, but now the share price has more than quadrupled, to almost 29 euros.
Third, several more interesting IPOs are expected in the Baltics. Expectedthat the Latvian fuel trader “Virši-A” will go public on the stock exchange in November. But in Estonia in the first half of next year as a listed company plans to become a giant “Enefit Green” – the Baltic leader in the field of wind energy, which is still fully owned by the Estonian state.
“DelfinGroup”. What is this business about?
The company was founded in 2009, when the first pawnshop was opened, and has been operating at a profit since 2010. Today, its business has several directions: the country’s largest pawnshop network “Banknote” (it has more than 90 pawnshops, more than half of them in Riga), trade in used household appliances and jewelry (buying – in the same pawnshops), consumer and other lending . Last year’s turnover was 23.7 million euros, pre-tax profit – 4.7 million euros (detailed presentation – here, webinar entry – here).
The largest shareholder is (and will remain after the IPO) Aigars Kesenfelds , who once founded the companies “4finance”, “Mintos”, “Mogo” and others.
Expensive? Not cheap
For one “DelfinGroup” share – 1.52 euros. Is it expensive or cheap?
In 2020, the profit before taxes (20% – the company pays them when dividends are distributed) was 4.7 million euros. If the IPO is successful and all the offered securities are redeemed, the company’s capital will be 48.4 million shares. It turns out that if the profit in 2021 will be the same, and it is 9.7 cents per share, then the ratio between the price (1.52 euros) and profit will be 15.7. Compared to Nasdaq Baltic-listed banks, this is an average level between the relatively cheap Šiauliu Bankas (75 cents, equivalent to eight years’ earnings) and the more expensive Coop Pank (29).
“It’s not cheap, but it’s not space,” says Andrejs Martinovs, head of INVL Asset Management. “The key question is whether the planned growth rate will be achieved. If so, then the IPO price is normal and the prospects are good. But we also need to understand the risks – there is a lot of competition in the market, many companies are engaged in consumer lending and lending. ”
The goal stated in the presentation is to earn 8.7 million euros by 2022, and 12.7 million euros (before taxes) by 2024. That is 18 and 26 cents per share, respectively. Paying half of the profit in dividends after tax (20%), yields 5% to 7% per annum, if you focus on the share price of 1.52 euros.
Speaking about the advantages of “DelfinGroup”, Martinov named the following. From the point of view of corporate governance, it is a good, stable company. A major shareholder factor – he will still control more than half of the shares after the issue: Kesenfeld has success stories in business and investment – he has also been a major shareholder in Madara Cosmetics. The company has experience in the market. It is quite realistic to double the size of the consumer lending portfolio in a few years. On the cons – focus only on the domestic market, without exports, the product is obviously not unique, there are many players in the market.
Do experts and smart people know better whether to buy stocks?
No one knows whether the price of a particular stock will rise or fall. Or, as investors say, if stock quotes were predictable and logical, any accountant could become a millionaire.
For example, when Madara went public at the end of 2017, many financiers with many years of stock market experience commented in the media and on their blogs that the price of 6.25 euros is still expensive. After that, many experienced players, those who bought the shares, sold them when the share price rose to “too optimistic” 12-15 euros – and looked to the next rise up to 29 euros from the sidelines.
Another similar example is the listing of Coop Pank on the Estonian Stock Exchange in December 2019, where the bank’s share was offered for an IPO for 1.15 euros. This price, according to the consensus of the market, was certainly not low. What’s more, for the first time on the stock market it even fell. But in August of this year it exceeded four euros – although it seems that no one expected it before.
So after a while the IPO price goes up?
It is not said. The well-known Latvian company SAF Tehnika went public in 2004, when it seemed that business, sales and profit growth were ahead. However, the sharp rise failed at the time, export markets regularly experienced difficulties and the share price fell sharply. In the last few years, it has been rising sharply again – but even now, 17 years after going public, the SAF Tehnika share pay cheaper at the initial IPO price (although the company has paid dividends for many years).
Recent examples include Lithuanian state energy companies Ignitis Group delisting last year. At that time, investors (among them – also about three hundred from Latvia) bought shares for 22.5 euros each. A month later, the stock on the stock exchange cost a little less than 20 euros. Then there was a rise and in early September – very recently – the price even rose to 25 euros. But at the end of the month – again fell up to almost 20 euros. Although it may have seemed that there is no tendency to have a more stable and secure business.
On the one hand, one can hope – if the company develops, then the increase in the price of a particular stock is simply a matter of time. On the other hand – nothing is guaranteed and the logic does not always work. Or, as investors say, the market may remain irrational longer than you can continue to be solvent.
So is it worth buying shares at all?
If a person has never invested money in shares before, but now thinks – to participate in the “DelfinGroup” IPO or not – can invest a small part of the savings, but certainly not the entire amount, Martinov believes. “If this is the first experience, then you don’t need to heat up, 5% will be enough,” he points out. “It is very good for the people that the company plans to pay quarterly dividends on a regular basis. In addition, it must be understood – you will not be able to buy shares for 500 or 1000 euros and get rich quick. Rather, it is a long-term investment. If all the goals announced by the management are achieved, the stock can become a stable “dairy cow” that gives good dividends “.
It is worth remembering an important decision of one of the world’s richest investors, Warren Buffett. In 2019 he announcedthat, after his death, 90% of the capital inherited by his wife’s girlfriend will not be invested in specific securities of individual companies, but in a fund linked to the stock exchange index S&P, which includes shares of the 500 largest companies. So it’s better to rely on economic growth as a whole than to try to guess individual success stories. Or, to quote Buffett himself, “there has been no better bet than what is put on America.” (There’s been no better bet than America.)
This advice can also be useful for many Latvian residents who are not interested in shares, but save savings (billions of euros in total) in bank accounts, Martinovs says: “This is a question of financial literacy and investment culture, which is very, very low in our country.”
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