Ant Group’s move to list at home and in Hong Kong comes as sentiment for technology offerings in public markets runs high but also against the backdrop of the ongoing US/China disentanglement, with the phase 1 trade deal remaining a deal in name only. Smoke and mirrors. The US Senate has passed a bill in May 2020 that that could force Chinese companies to give up their listings on US exchanges, hence the homeward bound shift. There is no going back to the pre-trade war relationship, and tensions continue to mount with the COVID-19 blame game only fuelling the fire, which makes listing closer to home the obvious choice. The ideological differences and political fragmentations that drive US/SINO confrontations are on full display and tectonic shifts such as, the tech cold war, splinternet and supply chain relocations we discussed at length when the US/CH trade tensions first emerged are now coming to fruition.
In the current market environment, growth and technology offerings with earnings duration are garnering sky-high valuations. Ant Group will be capitalising on that. Newly listed companies are having a stellar year and the Renaissance IPO ETF, which invests in companies that have listed in the last two years, is hovering around record highs. Investors have a seemingly insatiable appetite for growth businesses, new names/ideas and blue-sky stories and they are willing to pay up for a slice of these businesses. Speculation is rife. Ant Group with their 700mn+ monthly active users, 30% profit margins and control of more than half of the Chinese market in payments, ticks those boxes; in addition, the listing has been long anticipated and expectations are running high. Notwithstanding the likely popularity for home investors with China's state media recently urging the public to load up on domestic stocks.
However, it is not that easy. Competing rivals, Tencent and JD.com, pose a long-term threat to the payments and lucrative technology service businesses. Alongside a fickle regulatory environment that is difficult to predict, just last week Beijing approved new regulatory rules that impact Ant Group, geopolitical risks and lack of comparables, all combine to make Ant Group’s trajectory harder to estimate and a difficult beast to value. Although if the bubble-icious environment is anything to go by, the fintech behemoth should score a home run at listing, but we wait for more information to be provided before drawing any conclusions. Particularly on whether Ant Group’s growth rate will justify the valuation once the hype fades.
The problem with sentiment driven momentum and pricing behaviour is that it is fickle and if the delivery falls short of expectations, disappointment can bring vicious readjustments. Paying up for growth is not always an issue, but generally, you must be looking at the best in breed, or industry winner.
The 674-page draft IPO prospectus filed at the Hong Kong Stock Exchange has much of the crucial information redacted. This includes the number of shares on offer, the price of shares, and the company’s total valuation.
Whilst we have to wait for further details on the above, the prospectus does deliver detailed financial data showing the size and scale of Ant Group’s business.