Middle Eastern firms that rode the region’s boom in initial public offerings to only fall short of their lofty earnings targets are beginning to pay the price.
In what has been a hotbed for IPOs in recent years, the region is seeing a growing number of high-profile listings stumble in early trading as investors push back at sky-high valuations. That unease is now spilling over to earnings misses, adding to market jitters.
Shares in hypermarket operator Lulu Retail Holdings Plc, which attracted sovereign wealth funds such as Singapore’s GIC Pte in the United Arab Emirates’ second-biggest IPO of 2024, have extended losses since missing forecasts in its first set of earnings as a listed company in February. The stock is trading more than a third below its IPO price after Lulu’s debut less than five months ago.
Similarly, Saudi Arabian online retailer Nice One Beauty Digital Marketing Co. has erased much of its 30% first-day gain in January after missing revenue and profit targets.
“It is clear that the market has become more sensitive to valuations and will punish accordingly names that don’t deliver on their guidance,” said Rami Sidani, head of frontier investments at Schroder Investment Management.
Insufficient communication with the market is also weighing on market sentiment, experts say. While the quality of investor relations has improved during the course of the Middle East’s IPO wave, there is still some way to go.
Paolo Casamassima, chief executive officer of the Middle East Investor Relations Association, said some companies are preparing for IPOs without an investor relations team.
“The best way to approach an IPO would be to start setting up the investor relations function at least a year before the IPO,” Casamassima said. “It takes three to six months at least, to familiarize with all the stakeholders within the firm, and to understand all the divisions of the business.”
Some firms are skipping investor calls out of fear of being confronted with tough questions, according to Casamassima. There is also limited sell-side coverage, which hinders institutional investment, he said.
“You end up having a very retail-focused shareholder base, which can have a much shorter investment horizon,” he said. “So it’s an issue because you’re not focusing on long-term investors who want to push the company and potentially even support management.”
Schroder’s Sidani said his firm is engaging with some companies to improve their communication and guidance.
Companies that are better at communicating, such as Parkin Co. PJSC and Salik Co. PJSC, are seeing greater trading volumes as the market feels more familiar with the names and understands them better, said Sameer Lakhani, managing director at asset manager Global Capital Partners.
“Ultimately, there’s no such thing as too much information when it comes to a listed company,” Lakhani said.
