Investment bankers are smiling these days at the revival of IPOs. Public offerings are very lucrative operations for their business. Among the most important placements so far this year in Europe is that of Puig Brands. The perfume and cosmetics giant landed on the stock market on May 3. Its shares were valued at 24.5 euros and are now trading at 26.71 euros. That is, it has appreciated by 9%.
Despite this rebound, analysts believe that the value still has potential. As is the case with many IPOs, the first reports with recommendations for investors that the company has received come from the analysis departments of the same entities that it hired to go public. And they are all – fair surprises – quite favorable. Specifically, seven recommendations have been issued about the company, according to data compiled by Bloomberg, six are buy or overweight and only one advises clients to be more cautious (neutral). Furthermore, the average target price they give to Puig’s shares is 30.46 euros, that is, they see that it has an upward trend of 14% over last Friday’s closing price.
The group of banks that advised Puig on his IPO was led by two industry heavyweights, Goldman Sachs and JPMorgan. In addition to the global coordinators, Santander, Bank of America, CaixaBank, BNP Paribas, BBVA and Sabadell also participated in the sale of the company’s shares. According to the IPO brochure sent by the centenary Catalan company to the CNMV, the total expenses of the placement process, which raised nearly 3,000 million euros, amounted to 68.6 million, which were disbursed by the company itself and the family. Puig. Of this amount, 96% corresponds to the fees of investment banks for ensuring the sale of shares. The rest of the expenses were used to pay official fees (Iberclear, Stock Exchange, CNMV, Bank of Spain) and the fees of auditors, lawyers and advertising agencies.
The mystery of the ‘Green shoe’
The initial price range that Puig gave to the market for its stock market debut was a range that ranged from 22 euros to 24.5. After checking the market appetite, and in agreement with the placement banks, the highest price in the band was chosen. “The offer has been oversubscribed multiple times throughout the price range,” the company itself explained to justify the final price of the IPO.
Less than two months after the release, the placement banks begin to convey to the market that they fell short of the chosen valuation. One of them is Goldman Sachs. The entity, one of the leading investment firms at a global level, only decided to partially exercise the green shoe about Puig’s actions. This technicality is called a clause in IPO placement contracts, in which underwriters are allowed to sell more shares than expected, in cases where demand becomes much greater than expected. This term originates from the Green Shoe Company, which used this clause 70 years ago. The system was created to stabilize the IPO price in cases where there is strong demand and the value runs out of control. The problem is then solved by selling additional shares, obtaining risk-free capital gains for the underwriter.
Despite only partially exercising the green shoe, a sign that there is appetite for shares, but not excessive either, Goldman Sachs has published a very positive initial coverage report on Puig with a recommendation to buy shares and a target price of 30 euros. According to its analysts, Puig is the “best in its class” due to the strength of the brands with which it operates (among which Rabanne, Charlotte Tilbury and Carolina Herrera stand out). “We believe the company can achieve annualized sales growth of 11% over the next three years organically,” they highlight.
Another placement bank that is full of praise for Puig is Bank of America. With a target price of 30 euros and a buy recommendation, the American bank highlights the company’s ability to continue gaining market share. Among the Spanish entities that participated in the IPO, Banco Sabadell is one of the most positive with the value. “A premium company in its resilient sector,” the Valencia-based bank headlines its coverage initiation report with a buy recommendation.
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