Renk’s IPO bang masks troubled world

Athens International Airport

08/02/2024 06:30

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own.)
    By Pierre Briancon
       LONDON, Feb 7 (Reuters Breakingviews) - Four months
after giving up on a listing due to “clouded” market conditions,
Renk’s 23% rally on its first day of trading seems to herald
brighter days for European initial public offerings. The Athens
Airport operator also jumped 15% on its market debut. A bitter
truth, however, is that the German defence gear maker’s market
success has a lot to do with the rising geopolitical tensions
that should worry investors.
    Renk is best known for suppling gearboxes used in most
European armies’ tanks and marine vessels. The group makes 70%
of its revenue, seen at about 1 billion euros this year, with
the defence industry.
    Back in October, Triton Partners, the German private equity
fund that bought Renk in 2020 from carmaker Volkswagen,
generated little enthusiasm from investors who seemed to believe
the Ukrainian conflict might subside, hurting defence stocks’
prospects. Triton pulled the IPO three days before Hamas’
surprise attack on Israel.
    This time the situation looks different. Triton sold around
20% of the 500 million euro offering to French-German tank maker
KNDS, securing a key cornerstone investor who may in the future
raise its Renk stake to 25%. Triton also sold the shares at 15
euros each, the same level as its October offering, despite a
recent stock market rally. That valued Renk at a discount of
about 30% to Hensoldt  HAGG.DE , the 3.4 billion euro German
defence electronics firm, Triton said.
    After Wednesday’s surge, Renk’s market capitalisation hovers
around 1.8 billion euros. With net debt of 466 million euros and
EBIT seen at around 170 million euros this year, Renk is now
trading at 13 times its 2024 operating profit. The discount to
Hensoldt’s 17 times has shrunk to about 24%, Breakingviews
calculations show.
    Yet Renk’s market success may not be the swallow announcing
an IPO summer. The war in Gaza, followed by the disruption of
maritime transport in the Red Sea, has lifted all defence stocks
since October. Investors flocked to Renk’s IPO for the very
reasons they should worry about when they look at the prospects
for markets and the global economy in the coming months.
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    CONTEXT NEWS
    Shares in Renk, a German defence contractor, shot up by more
than 20% on their first day of trading in Frankfurt after
controlling owner Triton Partners sold about 500 million euros’
worth of shares in a private placement.
    Triton had pulled a planned initial public offering in
October due to what it called a “clouded” market environment.
    Shares in Athens International Airport jumped 12% on Feb. 7
after a partial privatisation by the Greek state.

 (Editing by Lisa Jucca and Oliver Taslic)
 ((For previous columns by the author, Reuters customers can
click on  BRIANCON/ 
pierre.briancon@thomsonreuters.com; Reuters Messaging:
pierre.briancon.thomsonreuters.com@reuters.net))