The 170% Stock-Price Rise Leading European Equities This Year
Covid-19 changed many things in the stock market. The meteoric rise of cloud-based platform provider Sinch AB wasn’t one.
After a brief interruption to the stock’s ascent when the novel coronavirus began its global spread in February, Sinch shares have continued to climb, hitting record highs almost daily and being the best performer in Europe’s Stoxx 600 Index this year with a gain of more than 170%. At 778 kronor, the stock is about 13 times higher than when it was sold in a 2015 initial public offering under the name CLX Communications AB, boosting the Swedish company’s market value to about 46 billion kronor ($4.9 billion).
So what’s to like? As a provider of the automated messages that tell you that a taxi or a parcel are on the way or remind you of a doctor’s appointment, Sinch operates in a high-growth market. Its customers include eight of the top 10 U.S. technology companies by market value, along with airlines, ride-sharing firms and delivery companies, for whom its cloud platform supports messaging, voice and video. And it’s expanding fast: this year alone, the company has made four acquisitions, including SAP SE’s digital interconnect business.
“We’ll continue to acquire as long as we see attractive companies with new technologies, and today there’s a lot out there,” Chief Executive Officer Oscar Werner said by phone.
Increased volume for Sinch’s messaging services due to coronavirus lockdowns can partly explain this year’s share price gain, besides other factors such as the company’s acquisitive growth, according to Carnegie analyst Predrag Savinovic. He has a buy rating on the stock, and recently raised his price target by about 30% to 790 kronor.
Of the two other brokers that have targets on the stock, SEB is the highest at 950 kronor, with Danske Bank the lowest at 520 kronor, according to Bloomberg data.
In its latest quarterly results, Sinch said that overall transaction volumes in its messaging unit rose significantly in March -- an increase that may partially relate to the impact of lockdowns.
According to Joakim Bornold, a financial adviser at Soderberg & Partners, the shares have been boosted by acquisitions, high growth and attracting big tech companies as customers. Yet further gains aren’t assured.
“The valuation undeniably feels strained and a potential drop could be big,” Bornold said. “The growth journey must continue, or there is a great risk that the stock will end up at the other end of the chart.”
Carnegie sees many potential catalysts for the stock, one of which is the prospect of the company winning a larger share of business from existing customers, who are only allocating a small part of their traffic to Sinch.
“They are more cost-efficient than their peers, and it seems like they have a broader product portfolio” Savinovic said. Furthermore, a “tilt to the tech industry will yield more traffic than the overall market.”
©2020 Bloomberg L.P.