Two IPOs to consider carefully

25th June 2018
-Asset management

Jean-Louis Richard, Senior Financial Analyst

In Switzerland the number of IPOs is rising this year. On June 15th, Oerlikon announced their intention to sell their Drive Systems division to the public, which independent is known under GrazianoFairfield. Graziano is an Italian entity producing transmissions for utility vans. Fairfield is an American entity specialised in pieces for gear boxes.

Another IPO is under way: Klingelnberg, a mainly German company, which has its corporate office in Zurich. It is a machine builder for transmission and gears and clutches. The Klingelnberg family has announced its intention to reduce its participation from currently 100% to about 50%.

In both cases the IPO is not to raise capital but to allow the main investor to reduce its holding. These are two industrial and cyclical companies. Both have a problem with profitability.

GrazianoFairfield has long been a problem, with an operating margin prior to the 2008 crisis, at the height of the previous cycle, of only 8%. In 2017 this figure reached a satisfying 12.4%. This is the signal that Oerlikon was waiting for in order to start its sale. Klingelnberg published an even weaker operating margin of 7.5% in 2017, with a lacking profitability of the capital employed. Has the family decided to sell at the moment when the figures are the least disappointing? Both IPOs are rather sell signals for cyclical companies.