• Tom Bradley

The Firms Thriving During the Pandemic

Source: Anna Shvets

For a large number of firms COVID-19 has brought an unprecedented financial crisis with widespread bankruptcies and escalating debt issues alongside omnipresent falls in GDP. With governments imposing strict lockdown measures in attempt to curb the spread of the virus the global economy has experienced the worst downturn in living memory. However, in the crisis some firms have been able to find a silver-lining as demand soars for a small number of products. Personal protective equipment (PPE) and video-conferencing software are notable constituents of a select group of products that have enjoyed burgeoning demand amidst the crisis.

Pexip, a Norwegian video-conferencing software, has been one of the firms to benefit from lockdown measures with a hugely successful IPO in May. The platform is regarded as a more secure alternative to Zoom, with notable clients including PayPal, Vodafone and the US Air Force. The company first planned an IPO in late 2019 and boasts a strong financial position with 2019 revenues growing by 72% reaching Nkr370m ($38m) and EBITDA doubling to Nkr76m ($7.9m). These impressive figures are expected to see further growth in 2020 with recurring revenues in 2020 Q1 double that of Q1 2019. This is likely due to the spike in customers that has occurred as a result of lockdown forcing people to work from home. Pexip were able to raise their targeted Nkr2.4bn ($250m) at a share price of Nkr63 ($6.51) on listing on the Oslo stock exchange on 14th May, representing the largest ever Scandinavian software listing. The share performed impressively on its debut day with the share price gaining 40% to hit Nkr88 ($8.62), valuing the firm at Nkr8.8bn ($862m).

The price has remained relatively stable since, closing on 26th June at a slightly lower Nkr86.40. There are concerns over whether there is a long-term future for Pexip – whilst they are benefitting from working from home measures at the moment these rules will eventually be abrogated and the need for video-conferencing will fall. However, CEO Odd Sverre Østlie is optimistic about the future of the firm – he argues “society is gearing up for digitisation” and believes people are realising “video is not a bad way of doing meetings”.

He also has touted the environmental benefits that it brings and celebrated the success of Pexip virtual IPO roadshow – claiming it enabled them to meet more international investors than they otherwise would have. The video-conferencing market is becoming a saturated one with negligible barriers to entry and tech giants such as Google looking to penetrate the industry. Whilst 2020 looks set to be a successful year for Pexip their long-term success depends upon a ‘new normal’ involving more remote working and less business travel.

Massimo Scagliarini at the GVS IPO. Source: GVS

Another firm to have benefitted from the pandemic are GVS, Italian producer of filters for ventilators and biohazard masks. Having seen strong growth in 2019 with revenues up 9% to €231m($259m) and profitability improving with net profits growing by 43% to €33m($37m). Even better growth is forecasted this year as a result of COVID-19 driven demand with CEO Massimo Scagliarini claiming revenue will rise by as much as 41% in 2020. GVS also saw a fruitful listing on 19th June, raising €497m at a share price of €8.15, making it the second largest European IPO this year so far.

The listing generated a payday for the magnate Scagliarini family who received €416m of the proceeds raised, they could see further gains should the underwriters choose to exercise the ‘greenshoe’ option which trigger the sale of a further 9 million shares. The remaining €81m raised will go to supporting the expansion of GVS. The share price has performed well since listing – gaining 19% to hit €9.70 on debut day and has remained steady since rising to €10.05 at market close on the 26th June.

Whilst the firm is set to perform well this year in a period of heightened demand it is highly unlikely this demand will be sustained long term, a sentiment reflected in the Scagliarini family’s decision to cash in on the proceeds raised. As the pandemic eases GVS will experience falls in demand and therefore revenues and profitability, although it can be expected to maintain a strong position in the PPE and medical equipment market in years to come.

In-demand PPE. Source: Reuters

Thai rubber glove manufacturer Sri Trang Gloves is also amongst the firms that have experienced a surge in demand as a result of COVID-19. The rubber glove industry as a whole is booming and Sri Trang are seeking to exploit this through listing on the Thai bourse on the 2nd July. In 2019 Sri Trang posted strong financials with revenue up by 10% to Bt12bn ($370m) and a healthy net profit of Bt613m ($19.9m).

Companies across the globe have looked to South East Asia, home to the bulk of the worlds natural rubber, as they try and stockpile PPE. This rise in global demand has led to forecasts that production of rubber gloves will exceed 300 billion pieces in 2020. Sri Trang are owned by parent Sri Trang Group. As a subsidiary of the rubber producing group who own 7200 hectares of rubber plantations across Thailand Sri Trang have access to one of the largest sources of rubber in the world. They are aiming to raise Bt15bn ($490m) through issuing a 31% stake with shares valued at a Bt34 ($1.10), implying a valuation of Bt48bn ($1.6bn) and making It Thailand’s second biggest IPO this year.

The money raised is set to be used for ramping up production capacity, with the group aiming to triple their production over the next decade to 100bn pieces a year. Currently Sri Trang are the 3rd largest producer of rubber gloves globally and they hope this IPO will enable them to challenge Malaysian market leader Top Glove. Having initially planned a small domestic listing when they filed for an IPO in 2019 the firm have benefitted hugely as a result of the pandemic, attracting international attention with the listing becoming highly anticipated in the Asia-Pacific financial hubs of Hong Kong and Singapore, meaning they are set to greatly exceed the $200m-$300m they initially planned to raise.

In the longer-term Sri Trang look likely to increase their market share and with an abundant access to natural rubber as well as an inflow of funds from the IPO they will be able to boost production comfortably. Whilst demand for rubber gloves will persist in a post-pandemic world this may not be enough to keep up with their production increases – they will partially rely on fear of the virus lingering and stockpiling efforts as a result. However, with many nations seeing massive shortages of PPE during the crisis Sri Trang will be confident that these stockpiling efforts will materialise.

Despite the devastation COVID-19 has brought to the global economy some firms have been able to prevail in the crisis and have seen successful listings on the equity markets. As lockdowns ease and cases fall the industries and firms that have profited from the pandemic are unlikely to see this heightened demand maintained long term. For these industries to remain successful in the long term they need to strengthen their market position and exploit changes in the ‘new normal’ of a post-COVID-19 world, which may come via PPE stockpiling efforts or reduced business travel.