The opportunities of Piazza Affari's discounted stocks
21 February 2023 _ News
December 2022 marked the end of one of the worst years for the major global equity indices. The FTSE MIB index recorded the least negative performance in 2022, closing at -12.03%, on the heels of the strong recovery in the October-November period (+19.18%), but recording the worst annual performance since 2018. The FTSE Italia STAR was the most negatively impacted index (-27.71% over the whole of 2022), while the FTSE Italia Small Cap and FTSE Italia Growth recorded a negative performance of -14.36% and -19.49%, respectively.
These performances have resulted in a pullback of traders from the market, also fueled by uncertainty toward the Meloni government and the expiration of the Pir.
But the conditions for an upturn are there, especially focusing on smaller capitalization companies.
In fact, current valuations are not justified by company fundamentals and perspectives. According to the Pmi Capital observatory, 89 percent of CEOs of companies listed on the Egm segment estimate revenue growth by 2023, and 71 percent expect more hiring. In addition, the greatest potential for investment is on technology in order to narrow the technology gap with Europe.
This has contributed to a widening of the range between fair value and valuation for Italian stocks, which promise double-digit growth rates. In particular, small caps belonging to the Egm segment can be called growth, but with value multiples and to date are paid an average of 4/5 times Ebitda versus growth stocks that stand at 10/12 times.
When it comes to the Egm segment, it is also crucial to know the company's history, business, governance, and its transparency to the market. And history teaches that if there is quality, valuation cannot be long in coming.
Certainly they are illiquid stocks, but they are still more liquid than private equity stocks, with more attractive stock market-expressed values and greater visibility
In conclusion, after a year like 2022, caution is mandatory. Multiples have certainly fallen, but we are finally seeing opportunities that do not come along often for middle-market investors. Indeed, multiples have compressed pushed down by the rate hike but the outlook for earnings growth is unchanged. In this context it is therefore good to focus on those companies affected by structural trends such as digitization and able to guarantee pricing power, that is, the ability to increase prices in order to keep margins unchanged.
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