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Con spirito

29 September 2020 By Dasha Afanasieva

In musical notation, “Allegro” exhorts performers to play in a brisk and lively manner. The eponymous Polish e-commerce group is taking a similar approach to its initial public offering. Hours after the online marketplace for electronics and homewares published details of the float, it had received sufficient bids for the shares it plans to sell. Despite the enthusiasm, though, Chief Executive Francois Nuyts may sound a note of caution.

The company whose website attracts 20 million visitors a month is selling shares for 43 zlotys ($11.47) each, at the top of a previously announced range and implying a market capitalisation of $11 billion. After tagging on $1.1 billion of net debt for the end of 2020, as estimated by analysts, Allegro’s implied enterprise value is almost 32 times its adjusted EBITDA for the 12 months to June. That punchy multiple is in line with the 33 times investors grant to e-commerce behemoth Amazon.com, according to Refinitiv and Breakingviews calculations. It’s also a standing ovation for private equity owners Cinven, Permira and Mid Europa Partners, which paid just $3.25 billion for the business in 2017.

Allegro’s ambitions show little sign of dissonance. It expects the value of the goods sold on its site to rise at an annual rate of above 20% in the medium term. That’s faster than the 18% growth for Polish online retail projected by consultancy OC&C. Given that Allegro already has 36% of the market, and Poland’s competition regulator is investigating whether its terms are “abusive”, this seems optimistic. Non-retail revenue may provide a boost: Allegro is trialling consumer finance products, armed with two decades of financial data on millions of Polish shoppers.

The company’s plush margins also suggest some vulnerability. Allegro does not handle the products it sells, relying instead on delivery companies and Poland’s postal service. Acting as a digital middleman allowed it to convert a hearty 47% of net revenue into adjusted EBITDA in the year to June. However, this was down from 57% in 2017, suggesting that Nuyts, a former Amazon manager, is investing to keep customers from being tempted by the Seattle-based giant’s offerings. Nuyts is likely to introduce his own packing and warehouse services, initially in Warsaw. To keep ahead of the competition, Allegro will have to live up to its name.


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