April 30 - Jumia Technologies AG is the best performing IPO of 2019 so far at New York Stock Exchange. Shares have climbed sharply from April 8 when it opened at USD 18.95 per unit in New York to close at $ 42.97 per unit yesterday down 5% on the day.
Jumia IPO is not the only one seeing a good response as other IPO's such as Pinterest, Zoom, Tiger ultra are all performing well for early investors, but it is the magnitude of the rise in Jumia shares which stands out.
So what are the reasons for such a drastic rise in Jumia shares, a company which has racked up losses of almost a billion dollars since starting operations in 2012.
Investors in developed world want access to Africa's retail segment and the Jumia stock seems to be a perfect way to access Africa for them. Some analysts also consider Jumia to be a takeover target for global e-commerce giants such as Amazon, Alibaba, JD.com or Walmart.
A recent example is the case of Walmart buying out India's e-commerce website Flipcart in a multi billion Dollar deal last year, another loss making Company.
So everyone seems to want a bite of Africa's retail market and that is great news for pre-IPO investors in Jumia as value of their investment is soaring.
But are current levels justified or pure hysteria and speculation. One analyst who spoke anonymously thinks the stock still has room to grow because the Company has not yet reported its first official financial report post IPO so many investors/traders do not fully know what they are getting into in terms of financials. They like the overall Africa hype story and that is going to push this stock. Whether it ends badly is something only time will tell but for now the stock is soaring.
Other factors that could be contributing the rise in price is the low float and lock in dates till when pre-IPO investors cannot sell their shares. Also Jumia should be applauded for its successful marketing of its IPO calling itself Africa's 1st Tech IPO which attracted a lot of attention in New York. Some marketing people are already calling it "amazon of Africa" and things like that tend to spark interest in a Company from investors who were oblivious about it earlier.
Major investors in Jumia include MTN, Orange Group, Rocket internet, Mastercard and AXA group. This ownership structure is another comforting factor for investors but at least one of them MTN has expressed interest in selling their holdings before.
As far as investors in Nigeria are concerned, they have missed out from being able to invest in the stock of Jumia and that is a disappointing reality of the shallow nature of capital markets in Nigeria.
South Afria based MTN is finally listing in Nigeria this year but it is forced by the hand of Government and not by choice of Company, after-all the Company has been operating in Nigeria since 2000. Also no other telecom Company has listed in Nigeria not even Nigerian owned Globacom so why would foreign Companies want to do it. The one which was listed, starcomms ended badly for retail investors before the Company was eventually acquired by a rival.
IPO's in Nigeria are generally a losing affair for retail investors as is evident from results of various IPO's over the past 5 years. Investors in those IPO's have yet to see the stock price go above the opening price of IPO and that is a reason for lack of confidence in our system.
How Nigerian companies manage to get valuations they get for IPO is baffling to retail investors but the bigger picture is the overall damage to Nigerian Stock market environment done by allowing such Companies to list shares at those valuations. People tend to lose faith in the system.
Back to the Jumia story and seems investors in New York are definitely keeping the faith in African retail and e-commerce for now. Where the stock price goes from here is anyone guess while some feel it is already high and ripe for correction others feel it could go higher.
Nigeria accounts for 28% of Jumia's sales in Africa and for investors here all we can do is sit on the sidelines and watch the action as it happens, pass comments and wonder when our capital markets will mature to attract real companies people want to invest in.
reporting for easykobo.com on Tuesday, April 30 2019 from Lagos, Nigeria