Allegro: Pole position

Its name implies speed. Yet more than two decades after its founding, Poland’s largest ecommerce site Allegro will go public. Plans to do so on the Warsaw stock exchange were announced on Monday. The largest IPO there since 2007 will raise €200m in new capital. Cinven and Permira will sell up to a third of the group’s shares, hoping for a valuation of as much as €12bn. At that price Allegro looks pricey.

Timing of the listing reflects a heightened investor excitement for online shopping owing to the pandemic. Shares in Latin American-focused ecommerce group MercadoLibre have risen 80 per cent this year. Bulls will prefer to compare Allegro with US giant Amazon citing the former’s market share of about one-half in Poland. 

That market power, though, has already attracted scrutiny from competition authorities. Some vendors allege Allegro’s fee structures unfairly benefit the group. Local consumer protection regulator UOKiK launched an investigation in early September. Investors should weigh up such concerns in the run-up to the pricing.

But there are other issues, too. The mooted €12bn valuation, including net debt of €1.3bn, is 13 times this year’s expected revenues, triple that of Amazon. MercadoLibre trades on the same multiple mooted for Allegro. Unlike Allegro, MercadoLibre is listed in the US on Nasdaq for which it will receive some premium. Allegro, at a possible 30 times this year’s ebitda, would command a higher rating than both Amazon or eBay on the same metric.

While its long history and incumbent status may justify a premium, Allegro still needs to protect its market share. Customer services such as free delivery and returns have eroded profit margins. Ebitda margins of 46 per cent in the half year to June are 10 percentage points below 2018 margins. 

Such defences are prudent. Amazon is a threat. Though more focused on Germany, it still serves Polish customers through the same infrastructure. Fears that the US giant could very well push east are another reason investors should demand a lower valuation.

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