German Equities

Newcomers to the Stock Market

Schaeffler IPO source Reuters
Parts maker Schaeffler, which listed in October, is among the higher movers in Germany's stock indices.
  • Why it matters

    Why it matters

    Moving up in Germany’s stock indices can generate additional investor attention – and money – for companies.

  • Facts

    Facts

    • Deutsche Börse is set to announce on Thursday whether it will make changes to the composition of its three main indices, the blue-chip DAX, the mid-cap MDAX and the small-cap SDAX.
    • Experts expect three new entrants to Germany’s mid-cap MDAX, including Bayer’s former plastics division Covestro.
    • Newly-listed firms Schaeffler and Scout24 are likely to lead the charge into the SDAX, though most expect Schaeffler will quickly rise further.
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    Audio

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It’s all part of a regular review. Only this time, the Deutsche Börse’s evaluation of which companies get to be part of its high-profile stock indices is likely to see some major changes.

Where one is added, another must leave. Deutsche Börse on Thursday is set to decide who gets to play in a higher stock market league – and who has to make room for the celebrated newcomers. Stock market analysts are already doing their calculations and expecting a surprisingly strong reshuffling in the mid-cap and lower indices.

There aren’t likely to be any changes to the 30 major companies that make up the blue-chip DAX index, which already saw some major changes in the summer with the inclusion of Vonovia, Germany’s largest real estate group and departure of chemicals group Lanxess.

In the first stock market league, other shaky candidates from September, namely the airline company Lufthansa and the salt and potash fertilizer supplier, K+S, look to be secure for the time being. The latter has fended off a takeover bid.

But things look completely different in the second and third leagues of German-listed companies. Newly-public companies including Schaeffler, Covestro and Scout24 are likely to be among the biggest movers.

“Such a heavy reshuffling in the MDAX is surprising.”

Daniel Kukalj, Analyst, Oddo Seydler

Moving up the ranks of stock-market indices is critical for any company that wants to make it big. Becoming one of 30 DAX-listed firm means answering calls from newer, bigger investors in Germany and across the globe, particularly from funds that only invest their money in blue-chip firms. But even a move into mid-cap status can mean a major increase in a company’s profile – and holds out the prospect of a jump into the top 30 in future.

Although investors have to be patient until the official decision on Thursday, it is considered to be relatively certain that Covestro, the plastics division spin-off of chemicals giant Bayer that only became a publicly-listed firm in October, will move up into the MDAX, the index of midcap German stocks.

Besides the newly-minted chemicals company, the real-estate firm Alstria and the advertising marketer Ströer could make the leap up into the MDAX, according to the calculations of Daniel Kukalj, analyst at the investment bank Oddo Seydler.

“Such a heavy reshuffling in the MDAX is surprising,” said Mr. Kukalj. Such movements were quite common in the third-tier exchange, the SDAX, but “in the MDAX it is rather unusual,” he said.

Uwe Streich, an analyst at the state-backed bank of Baden-Württemberg, LBBW, also believes Covestro and Ströer will move up. The losers, set to be relegated to small-cap status, are likely to be Elring-Klinger and Klöckner.

Whether real-estate firm Alstria makes the cut will likely depend on the future of MAN, the truck and machinery manufacturer taken over by Volkswagen four years ago. MAN has said it plans to leave a higher-regulated Frankfurt stock trading segment, the Prime Standard, and switch to the less-regulated trading segment called General Standard, on January 4.

The move will likely cost the company its MDAX membership. The only question seems to be when. Mr. Kukalj believes MAN, a founding member of the blue-chips that has fallen back since being taken over by VW, will be knocked out of the mid-cap index this week, clearing the promotion for Alstria. Mr. Streich said he expects Alstria will benefit only in the new year.

There are already larger changes coming to the SDAX. Besides the potentially relegated companies Klöckner, Elring-Klinger, and perhaps MAN as well, there are likely to be other new entrants – primarily from the ranks of high-profile German companies that have only just listed this year.

Experts are convinced that Scout24, Germany’s largest classified ads market Internet site, and car parts supplier Schaeffler, should easily meet the requirements for moving up into the SDAX.

Schaeffler first listed in October, raising just under €1 billion, though it had to scale back its demands in the wake of Volkswagen’s emissions-rigging scandal. Scout24 listed some €1.16 billion-worth of shares on October 1, starting off its publicly-listed days with a market value of more than €3 billion

“Primarily it’s the newly-listed companies who are moving up,” said Mr. Kukalj.

The two potential SDAX newcomers, as well as the MDAX newcomer, Covestro, only went public at the beginning of October. In the case of the industry suppliers Schaeffler, however, the SDAX membership is likely to be but a short intermezzo on the path to bigger and better listings.

“Schaeffler will only make a brief stopover,” said Mr. Kukalj. “At the latest in March, the automotive supplier will move up into the MDAX, perhaps even earlier.”

By then, he says, another firm, Wincor Nixdorf, will likely no longer boast the necessary free-float of 10 percent in the wake of its merger with Diebold.

Where there are companies moving up, naturally there have to be companies moving down.

“In this constellation, a total of three stocks have to move out of the small-cap index,” said Mr. Streich. “This should be the end for Tom Tailor, SHW, and Gesco.” Mr. Kukalj sees it the same way.

 

Jessica Schwarzer is Handelsblatt’s chief correspondent on stock markets in Düsseldorf. To contact the author: schwarzer@handelsblatt.com

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