How does a world-class market like the London Stock Exchange intend to maintain a global reputation in the face of a disaster like CAB Payments Holdings PLC (LSE:CABP)?
To recap, foreign exchange provider CAB Payments came to market this July at an £851 million valuation, thus going right into the FTSE 250 and marking what was and will be the biggest London IPO of 2023.
In a few short months, CAB’s valuation has plummeted as much as 80% and is currently worth around £162 million.
This is great news for at least one major shareholder, that is JPMorgan Chase & Co (NYSE:JPM).
Fresh off from acting as sole sponsor and joint bookrunner in CAB’s IPO, JPMorgan’s British stockbroking subsidiary Cazenove took a short position on 0.5% worth of CAB’s outstanding shares, per the FCA’s short positions table.
With friends like that, who needs enemies?
In JPMorgan’s defence, its investment bank and asset-management wing are not bedfellows, or at least not meant to be, but it was hardly a vote of confidence for what was meant to be a lone bright spark in a torrid year for London’s capital markets.
Did JPMorgan see something the wider market was missing?
There may be potential criticisms of how CAB managed its risk disclosures in the lead-up to its flotation, specifically in relation to its dollar-naira forex corridor.
The value of the Nigerian naira has plunged over 90% since mid-June due to dollar shortages and a subsequent forex black market.
CAB conceded in a trading update today that “in recent weeks, the company has seen a number of changes to the market conditions in some of its key currency corridors, on top of the ongoing uncertainties surrounding the Naira, which are impacting both volumes and margins; most notably, the Central African franc (XAF) and West African franc (XOF)".
“At the present time, these market conditions are compressing margins and reducing trading volume,” the company said.
To that end, CAB issued a profit warning and now expects full-year revenues to be 17% below previously issued guidance.
This is a bit of a change of tone to CAB’s IPO prospectus, although CAB did indeed touch on the Nigerian policy changes currently proving troublesome.
It read: “While the FX market is still absorbing and adapting to the new policy guidance and it is thus difficult to know the impact it will have on the group's Naira take rates, if the Naira take rates were at post-mid-2021 levels into the second half of 2023, the directors expect the group could exceed the group's total income growth target for 2023.”
For the record, Naira trades constitute 23% of CAB’s revenues, according to the group’s prospectus, while XAF and XOF comprise 7% apiece.
Analysts raise eyebrows
CAB does not have a crystal ball, but were the current market uncertainties properly baked into the group’s initial IPO prospectus?
Some market commentators aren’t convinced.
Analyst Nick Anderson at Liberum had this to say: “In a nutshell, [management's] reputation is in tatters. While we think the underlying business has a strong proposition with a large market, management's inability to foresee events and guide is a major concern."
Another commentator, speaking on an anonymous basis with Proactive, said that the market is punishing CAB for a lack of transparency in market headwinds during the IPO, and while the nosedive in valuation is an “overreaction”, there is a “massive loss of trust” in CAB leadership.
Where does this leave CAB? Management will be hoping that this is indeed just an overreaction to headwinds caused by only one (albeit the largest) of CAB’s markets.
But, as one commentator said: “It’s disingenuous to blame a whole country and a currency for that level of decline”, rather than something more fundamental to the business.
Proactive has reached out to CAB for a contribution to this article.