Experts say Enefit Green's IPO on Tuesday can be a successful one, because interest for renewable energy companies on the stock market is increasing.
Enefit Green, renewables subsidiary of state-owned generator Eesti Energia, issued an initial public offering (IPO) on Tuesday with the aim of raising €100 million.
Investment company Redgate Capital partner Mairo Kaseväli said he believes the share will be oversubscribed. He said retail investors can receive a quarter of the shares issued.
"The price is in the same range as other companies in the sector. It is clear that the company has not gone chasing after every cent, the desire is to get this IPO done successfully," Kaseväli said.
The expert said the renewable energy sector is hot. "What might be attractive to institutional investors, is that there are not too many renewable energy producers who produce from 100 percent renewable sources on the stock exchange," Kaseväli noted.
"There are many companies with a renewable energy portfolio that produce from traditional fossil fuels. But a company producing 100 percent renewable energy - there will certainly be interest. And from the perspective of retail investors - we have seen that anything that is put on offer in recent years, will get picked up," he added.
Asset management company Avaron fund manager Peter Priisalm said it is worth subscribing to Enefit Green's shares. "Retail investors do not have much choice, they must subscribe from the top end and will get the price the institutional investors end up assigning. We have deciding that it is an interesting option," Priisalm said.
He noted that Enefit Green's shares can be considered growth shares and cannot be compared to that of Port of Tallinn's, which aims for dividend yield as the main priority.
"In this case, we are speaking of a growth share, Enefit Green's EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and net profit should grow some 50 percent if all their investments are carried out and they intend to invest €800 million in the next four years. This also means that the company's cash flow will be negative throughout this period and they will finance dividends with borrowed money in some sense," the fund manager added.
The state has talked about putting up to 49 percent of Enefit Green on the stock market, but only 17 percent will be privatized in the IPO. Renewable energy is a growing and popular sector and Priisalm said the state can assess the demand and stock price.
"Secondly - since there is clearly interest on the state level to use renewable energy resources and for there to be more of these, it is also possible that Enefit Green will have to raise additional capital if there are enough opportunities and this could dissolve the state's participation further," Priisalm said.
1,000 stocks are guaranteed for retail investors participating in the IPO and the share distribution could play a significant role in the stock's volatility, according to Priisalm.
"I think the final distribution will depend on what the demand for these stocks are from different investor groups. What these emission organizers must consider is that stock trading should also be stable after trading is started on the stock exchange. If you give retail investors too much of the share, you can expect the volatility to be somewhat higher and people rushing to sell at any negative piece of news. I think we will wait for the results and emission organizers are professionals and will divide it up, based on what is best for the company," Priisalm said.
The IPO ranges in price from €2.45 to €3.15 and the shares are being offered publicly only in Estonia, Latvia and Lithuania. The final offer price will be determined through a book-building process and will be the same for investors in both retail and institutional offerings. Subscription orders submitted in the retail offering must be submitted at a price corresponding to the highest level of the price range, i.e., €3.15 per share.
The listing and admission to trading prospectus runs to October 14. Trading in Enefit Green's shares is expected to begin on the Baltic Main List of Nasdaq Tallinn on or around October 21.
Editor: Kristjan Kallaste