The price of Air Berlin shares quickly slumped on its first day of trading on the Frankfurt stock exchange Thursday after the company finally went public after postponing its initial public offering (IPO) from last week.
Air Berlin CEO Joachim Hunold still seemed upbeat before trading began
Initially, Air Berlin shares rose to 12.65 ($16.16) euros in early trading in Frankfurt, compared with the issue price of 12 euros. But then investors quickly offloaded the shares, which slumped to an intraday low of 11.74 euros.
Air Berlin, the third-biggest low-cost airline in Europe, had set the issue price at the lower end of the so-called "book building" range of 11.50-14.50 euros on Wednesday, meaning it could raise up to 510 million euros from the initial public offering.
The airline was originally scheduled to float on May 5 but concerns over the price of the shares and the future profitability of the airline in such a competitive market as the budget sector forced the company to reassess its flotation and it was postponed until May 11.
It is thought that that fall-out from the postponement and the continued doubts over the airline's future stability may have contributed to the rapid tail-off in trading over the day. Analysts also expressed their concerns that the company had decided to go public before it proved itself.
I n vestors wary of u n prove n compa n y with big pla n s
Even the low end share offer couldn't attract more punters
"It's a bit of a disappointing start, particularly as the issue price was at the low end of the range proposed by the company," Jürgen Pieper, an analyst with Bankhaus Metzler, said in an interview. "And it's still difficult for the shares to hold at that level, which doesn't bode very well.
"Their track record is not great. They have posted steady operating losses in the past three years," Pieper added, saying that plans to double capacity in the next six years are "very ambitious," particularly as the years of big revenue improvement are likely over.
This view was shared by Nigel Bolton, head of equities at Scottish Widows Investment Partnership.
"Air Berlin has a limited history, a limited track record, and their expansion plans are pretty ambitious over the next two years, at a time when we know Ryanair is planning to expand in Germany,'' he told Bloomberg news service.
I n vestme n t n eeded to battle domestic a n d Europea n rivals
The no-frills sector is cut-throat and crowded
Air Berlin was hoping to send a message to its rivals with the flotation that would underline its intent to battle for a larger slice of the lucrative no-frills sector currently dominated by Irish low-cost carrier Ryanair and UK-based budget airline easyJet.
There were also big plans to take on competitors such as TUI, Hapag Lloyd Express (HLX) and Germanwings as well as Deutsche Lufthansa and holiday airlines such as Condor in the cut-throat and crowded German budget market sector.
The disappointing trading on the opening day was in stark contrast to predictions that London-based investment firms were ready to plunder large swathes of Air Berlin stock. A report in the German financial publication Börse n Zeitu n g last week stated that the response during the subscription period which started on April 28 has been positive, particularly in Britain.
Expa n sio n pla n s may be de n ted by poor IPO showi n g
Air Berlin's high-flying plans could be grounded
A poor performance on the stock exchange could put a sizeable dent in Air Berlin's future plans. According to reports, 50 percent of the new capital generated by the IPO had been earmarked for 55 recently ordered new Airbus A320s, 40 percent would be invested to extend the current network and the remaining 10 percent would be used to refinance debt
The airline currently has a fleet of 56 short-haul aircraft and mainly operates direct flights from airports across Germany to Mediterranean destinations including mainland Spain, the Balearic Islands, Greece, Turkey and North Africa. It hoped to use the allotted expansion funds to branch out into the Scandinavian and eastern European markets, as well as growing in Spain and the northern UK.