After a second Neuer Markt-listed technology company filed for insolvency the first week of November...
After a second Neuer Markt-listed technology company filed for insolvency the first week of November, investors say they're getting ready to ditch shares in businesses showing signs of a similar fate.
Software maker Teamwork Information Management AG sought protection from creditors on Friday, two days after a Frankfurt court opened bankruptcy proceedings against Gigabell AG, an Internet company that sold most of its units to a Finnish company.
The 323 companies on the Neuer Markt have a combined market value of f165bn ($141.5bn), less than a fifth of Germany's benchmark DAX Index. The companies on the technology-dominated exchange, however, are valued at about 480 times average earnings compared with an average of 67 times earnings in the DAX, according to Bloomberg Analytics.
That indicates newer companies have further to go to meet expectations of rapid growth. "There will definitely be more Neuer Markt companies filing for insolvency,'' said Klaus Hagedorn, manager of dm6bn ($2.6bn) at Metzler Investment GmbH in Frankfurt.
While investors are more wary of young companies that sold shares on the back of future sales, they're also making money out of them. The value of companies listed on the Neuer Markt has risen more than eight times since it was started in 1997.
More recently, the market values of debutants such as Caatoosee AG, which builds internet trading websites, and Linos Diagnostic AG, which develops optical technology, have more than doubled since the companies sold shares in September.
DG Bank AG, which co-managed the initial public offerings of Teamwork and Gigabell and managed sales for 50 of the companies on the Neuer Markt, expects the Newmax All-Share Index that tracks the market to rise to as high as 9,000 by the end of 2001.
Still, Metzler's Hagedorn expects as many as four more companies to go bankrupt in the next six months. "Investors more and more are questioning the future success of business plans and prospects of companies on the Neuer Markt,'' said Karl Eugen Reis, head of research at DG Bank.
Teamwork said it was unable to pay debts incurred from expanding abroad and introducing new products. It hasn't been able to sell new shares and raise capital as planned as its share price declined, it said.
Many companies bought rivals with short-term loans and planned to raise money by selling more shares at a later date, analysts said. Teamwork made acquisitions in France, Poland, the UK and Germany since its July 1999 initial public offering.
"Teamwork and other Neuer Markt companies made a lot of acquisitions when the market situation was really good, hoping they could raise more money later,'' said Sarah Paulke, analyst at WestLB Panmure, which managed Teamwork's share sale. "Now these capital increases are not possible any more because of the weak market.''
The Neuer Markt almost has halved since a 10 March high of 8,559.32 points. Teamwork shares rose to a high of f57 a day before and dropped 94% before they were suspended on 2 November. They're down more than 11% since resuming trading yesterday last week.
Gigabell shed 98% of its value since a 7 March high of f122.50.
Teamwork, based in Paderborn, Germany with 320 employees, said sales in the third quarter fell by more than it had expected and after it already cut its 2000 forecasts in July. It sought additional credit from its bank, Paderborn Sparkasse, which refused.
Gigabell found itself in difficulties after its first-half loss widened five-fold and a UK investor withdrew its plan to buy a stake in the company.
Teamwork, which will continue to operate after the court-appointed administrator agreed to pay employees' salaries, on Monday said it already had received "positive signals'' from potential partners.
Helsinki-based Internet provider Jippii Oyj last month agreed to pay f5m for most of Gigabell's operations, including customer addresses, hardware and licenses, with sales of f13m and about 60,000 customers. "There are a number of companies on the Neuer Markt that would be really suitable to take private,'' said Hansjoerg Schnabel, investment director at private equity company Bridgepoint Capital. They can't hold capital increases, so being on the market is not useful but costs a lots of money.''
Hannah Warrington and Nicole Weimer in the Bloomberg Frankfurt newsroom
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