The climate for IPOs in Germany has considerably improved, according to the IPO sentiment indicator jointly developed by Deutsche Börse and TU Munich.
The indicator climbed from 30.1 points to 34.2 points, reflecting buoyant sentiment among investors, companies and underwriters in the primary market.
The indicator is based on surveys of market participants’ attitudes towards the current IPO climate as well as calculations based on quantitative input, such as volatility, share prices, price/earnings ratios and subscription gains.
Volatility in German blue chip stock prices, i.e. the expected fluctuation of the share prices in trading, has increased overall over the past six months. High volatility can increase uncertainty about the likely price performance and potential success or failure of an IPO.
Prices on the German stock market, measured using the DAX index, have increased over the last six months to a relatively high level. High stock prices usually encourage greater IPO activity as companies can expect a higher return from their own shares.
Underpricing of the issue vis-à-vis the initial listing price is an important aspect of the performance of the primary markets. This reflects how successful past IPOs have been from the market participants’ perspective. In the period examined, five companies went public: Fenghua SoleTech, TLG Immobilien, Zalando, Rocket Internet and Snowbird. The issue prices were mostly at the lower end of the subscription range, whereas the first trading prices were higher. Moreover, the majority of newcomers to the market listed significantly higher than the issue price. The perceived level of underpricing has risen considerably.
Overall, the upward movement in the DAX, increasing underpricing and the positive IPO climate – despite high volatility – point to a looming upturn in the primary market, assuming that the market situation remains stable.
The IPO sentiment indicator was developed by the Center for Entrepreneurial and Financial Studies (CEFS) at the Technical University of Munich together with Deutsche Börse. This barometer of sentiment for the primary market is produced twice a year and provides investors, issuers and banks with a tool for assessing the market situation.
