Editor’s note: This article was first published in July 2011, just before the Bankia and Banca Cívica IPOs. The expected market value (around €8,000 million), P/E ratios and price-to-book figures are pre-listing estimates. Bankia was rescued with public money in 2012, Banca Cívica was absorbed by CaixaBank in 2012, and Bankia merged into CaixaBank in 2021.
With the Bankia and Banca Cívica IPOs stirring up interest among small and medium-sized investors, who think a low offer price could make them a profitable investment, we take the opportunity to highlight the points some analysts are raising. Opinions vary widely, so in the end, as usual, the last word belongs to each investor’s own analysis.
Some analysts think haste is a bad idea, and in the case of Bankia and Cívica, being obliged to go public in July at a knock-down price doesn’t inspire much confidence. Bankia’s options were to list soon (in July), even at the cost of the price, priced at barely a third of book value, or to wait until after September, which meant great uncertainty about how the market would look. In the end, as we all know, they opted for the first. Here we explain the reasons and the options.
Going public now is because both Bankia and Cívica are more interested in raising fresh capital than in getting a good price. As Rodrigo Rato (Bankia’s chairman) put it, the share price is something that will come and go over the company’s life on the stock market.
Bankia’s starting position
Bankia will trade with a market capitalisation of around €8,000 million (under €5 per share) and a high P/E (price-to-earnings ratio) of over 20, bearing in mind that banks are at around 7, and Criteria, specifically, is at 9.
Listing at 35% of book value may look like a failure to some analysts, although other experts think it could be the best foundation for success in the medium to long term, which is ultimately what matters.
What investors need to analyse
With Bankia and Cívica, any of the following could be the case:
- They are going public at a price far below their real value, because with no owners, nobody minds selling them off cheap.
- They are going public at a steep discount to book value but at a premium to their real value, because of insufficient provisions.
- Their low price is justified by the timing of the listing, by investor mistrust and by the reasons set out above.
What investors should bear in mind is that coming to market at a low or “rock-bottom” price doesn’t necessarily mean the company is in a bad way. It may well be a deliberate strategy to attract investors who feel increasingly wary of this kind of stock in today’s market conditions.
“Bankia is listing at a price-to-book ratio of between 46.3% and 51.3% after the capital increase, which is equivalent to valuing Bankia before the increase at between 30% and 34%. The difference between before and after the increase is because the funds raised increase book value by 100% of the amount raised.”
Will investing in Bankia pay off?
When a company goes public at a low price, it can become the target of immediate speculation, so the shares will probably be very volatile in the first few days. As some of you already know, I’m not personally drawn to bank stocks, but over the long term (2–3 years) I could almost guarantee that if our financial system is still standing (and I stress, if our financial system is still standing), Bankia will have been a profitable investment. And trading fans will certainly have a field day in the first hours after it lists.
Featured image: Marco Pagni, CC BY 2.0, via Wikimedia Commons.
