A 233% Virus-Driven Rally Crowns Latin America’s Best IPO
A 233% Virus-Driven Rally Crowns Latin America’s Best IPO
(Bloomberg) -- A relatively little-known firm, born in the heights of the dot-com bubble, has emerged as one of the biggest corporate winners from the pandemic ravaging Latin America’s biggest economy.
Locaweb Servicos de Internet SA, which offers services from website hosting to cloud computing, had a rush in demand from small and mid-sized companies as the virus shut stores and confined workers to home offices. The firm had just gone public in February when the virus hit and has since rallied 233%, making it Latin America’s best IPO this year, according to data compiled by Bloomberg.
The Sao Paulo-based company, founded in 1998, saw its net revenue grow about 25% in the second quarter from a year earlier on the back of its fast-growing e-commerce segment, which offers tools for clients seeking to set up digital shops. The number of new stores on Locaweb’s platform nearly quadrupled from the end of 2019.
“The pandemic boosted our growth, but we had set up an aggressive portfolio of products and sales were already at a strong pace in the first two months of the year,” Chief Executive Officer Fernando Cirne, 47, said in a video interview.
Social-distancing measures fueled a change in the way Brazilians shop. Online purchases, which accounted for just 7% of retail sales in 2019, should climb to 30% by 2030, according to estimates from HSBC Holdings Plc. The country, one of the global hot spots for Covid-19, has started to gradually reopen its economy.
According to Cirne, Locaweb’s e-commerce segment should be responsible for more than 50% of the firm’s total Ebitda next year, up from 45% currently. The company has about 400,000 clients and is aiming for a seven-fold increase in how much new clients spend on its services in a three-year period.
“We see Locaweb as the Shopify of Brazil, a very special and strategic asset,” said Ignacio Arnau, a Madrid-based fund manager at Bestinver Asset Management, who has owned the stock since its IPO.
Locaweb is focused on acquisitions to sustain its pace of growth. The company announced the purchase of Social Miner for about 22 million reais ($3.9 million) last week and is in advanced talks with six other targets, according to Chief Financial Officer Rafael Chamas.
Locaweb has bucked a market downturn of nearly 18% this year and outperformed retailing giants including B2W Cia Digital and Magazine Luiza SA. Sixteen companies have gone public in Brazil this year and more than 40 have IPO requests filed with Brazil’s securities regulator CVM.
The rally has pushed the stock to trade at about 81 times its expected 2021 earnings, according to XP Investimentos estimates, leading some money managers including Infinity Asset Management’s Fernando Siqueira to trim their holdings.
“The company benefits from a secular trend, but valuations now look way more stretched,” said Siqueira. “Now it’s time for the company to deliver.”
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