Poland has never seen an equity market debut quite like it. Two weeks ago, the ecommerce group Allegro launched on the Warsaw stock exchange in the central European nation’s biggest initial public offering. It became, at a stroke, Poland’s biggest listed company.
By the end of the first day of trading, Allegro’s market capitalisation had jumped 63 per cent. In total, it has doubled since its debut, and the country has a €20bn company.
The success of Allegro’s IPO is a vindication for the company, which offers investors exposure to both the pandemic-induced acceleration in growth of online shopping and Poland's growing middle class. But it also has a broader significance for the country’s capital markets, giving a digital sheen to a stock exchange better known for stodgy state-controlled businesses focused on sectors such as finance and energy.
As recently as April, the biggest company in Warsaw’s blue-chip index, the WIG 20, was PKO BP, a state-controlled bank. Now, the top two companies are Allegro, worth more than twice as much as any other member of the index, and CD Projekt, the games maker behind the smash hit Witcher video games. The latter’s share price has surged as it rushes to put the finishing touches to Cyberpunk 2077, one of 2020's most hotly anticipated launches.
There may be more good news to come. Canal+ Polska, the pay TV platform, said last week that it planned to list in Warsaw. Huuuge, a mobile games manufacturer, and the online clothing group Answear.com are also aiming for listings, underlining the country’s growing reputation as a European technology hub. Traders and investors hope that an exchange that has lost more companies than it has gained over the past three years might be beginning to recover.
For foreign investors that would be good news. Before coronavirus, Poland had one of the EU’s fastest-growing economies. Many of the fundamentals that powered that growth — such as the expanding middle class, inflows of EU funds and low interest rates — are likely to continue beyond the pandemic. Yet since 2010, the WIG 20 has lost a third of its value. That has not given investors much of a taste of Poland’s success.
There are two reasons for caution. For Allegro itself, the question is whether Amazon, the global ecommerce hegemon, decides to muscle in on its home turf. For now, the US company serves Polish customers through a Polish-language version of its German website.
But it has been investing in logistics infrastructure in Poland and is rumoured to be preparing for a more concerted push east. Were it to do so, Allegro’s multiple might begin to look stretched: its enterprise value is already around 21.5 times expected sales for the next 12 months, more than five times the comparable figure for Amazon.
The broader concern for foreign investors, however, is that the success of Allegro and CD Projekt does not change the fact that Poland's government remains deeply ambivalent about foreign capital. One of the favourite refrains of prime minister Mateusz Morawiecki, who before entering politics was an executive at the Polish unit of Spanish lender Santander, is that “capital has a nationality”.
This has been particularly true in the media sector, where MPs from the ruling Law and Justice party have frequently raised the prospect of reducing foreign ownership. Some even favour legislation that would force foreign media groups to sell stakes that exceed a certain threshold.
Even if the government stops short of such drastic measures, it can reduce foreign media ownership in other ways. Earlier this month, media reported that German media group Verlagsgruppe Passau was in talks to buy the Polska Press arm of state-owned refining group PKN Orlen, which controls a string of regional newspapers.
When the news broke, the country’s culture minister said that state-controlled companies “should” buy up media groups, but insisted changes to Poland's media market would be done in a “civilised” manner.
No matter how “civilised” the transaction, oil refining and local journalism are not obvious bedfellows. Nor is it clear whether a shareholder invested in the energy sector would wish to diversify their portfolio in the manner directed by the Polish government. For now, the government seems to be limiting its tinkering to sectors that it deems strategic. The problem is that in Poland what is deemed strategic can always change.
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