Come this time next month, the Euronext stock exchange in Dublin will be facing difficult prospects on its equities market as one of its biggest companies CRH delists and switches to New York as it pursues potentially greener pastures and higher profits which come with portraying itself as an American company.
The Irish-based building supply company — formed in 1970 — has ample reason to move its listing to the US, but as one of the most traded companies on the Euronext Dublin platform, it is leaving behind a gaping hole which is unlikely to be filled anytime soon.
On Thursday, CRH released its results for the first half of the year, which showed earnings climbed 14% to $2.5bn (€2.3bn) as sales rose 8% to €16.1bn, reflecting growth in most operations in the Americas and Europe, despite a sharp decline at its European building division which took hits from a slowdown in housebuilding activity and bad weather.
On the day CRH released its latest results, it accounted for nearly half of all trading turnover on the Euronext Dublin exchange. While data from one day is not representative, CRH is still one of the biggest and most actively traded shares on the platform.
It currently has a market value of €37.5bn, with shares up 41% on this time last year.
CRH is not alone in deciding to leave the exchange — which is due to come into effect on September 25. At the end of May, Guinness-owner Diageo delisted from Euronext Dublin, while virtual reality software company Engage XR decided to leave in April.
Gambling giant Flutter Entertainment — which owns Paddy Power, Betfair, and FanDuel in the US — could also potentially leave the Euronext Dublin platform, with its chief executive Peter Jackson saying earlier this month it was working towards a US listing for the company as it seeks to further expand across the Atlantic.
James Buckley, senior equity research analyst with Cantor Fitzgerald, said the reason CRH was departing Euronext Dublin — but remaining headquartered in Dublin — is because portraying itself as a US company would enable it to better fight for contracts being doled out under the Biden administrations Inflation Reduction Act, which will spend trillions over the coming years on infrastructure.
“Anything you can do to highlight that you are really a US company is going to be beneficial in terms of winning contracts,” he said.
"With Flutter, it is the fact that FanDuel is driving the business in US side sports betting. So that is going to dominate the group's profile in a few years' time if it keeps going at this rate.”
David Kearney, head of corporate broking with Goodbody, said CRH and Flutter are big constituents of the Irish market but their reasons for leaving the exchange are very specific to them.
Three-quarters of CRH’s business is done in the US alone, while Flutter Entertainment sees a number of US states de-regulating the gambling sector and it may want a piece of it.
“The reasons for the two exits are quite specific to them and don’t necessarily apply to other companies. But there is undoubtedly a need to nurture the domestic equity markets,” Mr Kearney said.
While Euronext Dublin might be experiencing challenges with companies delisting, other exchanges around the world are also facing issues, particularly in the UK as well as in other EU countries.
Euronext is a pan-European stock exchange which operates in Dublin, Amsterdam, Brussels, Lisbon, Milan, Oslo, and Paris. It took over the Irish Stock Exchange in 2018.
The Dublin exchange is dwarfed by the other bourses in the group, particularly Paris and Amsterdam — both of which can offer access to some of the world’s largest companies such as luxury goods company LVMH in Paris and Heineken in Amsterdam.
While Ireland may have numerous multinationals located here, they will never be listed on the Euronext exchange, which means a very large segment of the Irish economy is not represented on the platform.
One of the other issues the Euronext Dublin platform is facing is just how concentrated it is around just a handful of companies.
In addition to CRH, Flutter Entertainment is also one of the highest traded shares on the exchange and has a market value now standing at €29.2bn. A decision by Flutter to leave the exchange could also have implications.
Other big companies listed in Euronext Dublin include Ryanair, Kerry Group, Glanbia, AIB, Bank of Ireland, as well as Kingspan. Most of the companies are also listed on the London Stock Exchange, with the exception of Kingspan, which announced in July that it would be leaving in a move that was backed by a majority of shareholders.
During July, the number of trades on the Euronext Dublin platform dropped to just over 424,000 from over 500,000 during June. The number of trades per month has been on the decline since it peaked in March last year at over 1.15 million.
Euronext said the decline in trading volumes was primarily due to a shift towards larger average trade sizes similar to those before the covid pandemic. It pointed out that between January and July this year, the market saw €42.5bn worth of turnover versus €38bn during the same period in 2022.
Mr Buckley said Euronext Dublin could see trading volumes come back from the banks as the Irish Government sells down its shares in AIB and Permanent TSB.
However, he said this was just going to offset the reduction in trading volumes and what Euronext Dublin really needs to do is focus on generating initial public offerings (IPOs) which have “not been particularly buoyant in recent years”.
According to Euronext data, the Dublin market has not had an IPO since December 2021, when Health Beacon decided to list on the Euronext Growth market. It currently has a market value of just over €30m.
Before that, it was energy storage company Corre Energy in September of that year, which now has a market value of €243.8m.
Mr Buckley said the increasing costs of borrowing, due to repeated interest rate hikes from the European Central Bank, should “theoretically” encourage more companies to list on the market but the question is whether there will be the volumes there to support it in investor interests.
"If you look at recent IPOs in the UK over the past couple of years, they haven't been particularly successful in a lot of cases. So, theoretically yes it should improve the landscape for Euronext, vis-à-vis debt financing,” Mr Buckley said.
Mr Kearney said the Euronext Dublin platform is viable and had added a huge amount of value over the years, pointing to a number of success stories such as Ryanair.
“There’s about €10bn plus activity every month on the Irish equity market, so it is not insignificant. A very significant majority of that is very large institutional investors buying and selling the Irish companies listed.”
Mr Kearney added he did not have any concerns about the exchange and that its track record speaks for itself.
“A functioning domestic capital market supports a more vibrant funding environment which supports entrepreneurship, company formation which supports employment, tax generation. All of those kinds of good things that you really want for a really healthy functioning domestic economy,” he said.
“Every global investor of note, we’re talking in the thousands, participates in the Irish markets.”
Mr Buckley pointed out that the London Stock Exchange is facing some of the same issues Euronext Dublin is.
“It is basically along the lines of typically US-listed companies trade on higher multiples certainly than companies listed in Europe or in the UK,” he said.
“There is also, in the US, shareholders are more relaxed about executive remunerations. In the US, pay packages for the top executives — and I'm talking about the C-suite here — would typically be significantly higher and attract less attention than they would do in Dublin or London,” he said.
In the last week, Cambridge-based chip designer Arm Ltd, which is controlled by Softbank Group, opted to file its initial public offering in the US rather than in the UK.
It is the latest blow to the London Stock Exchange, which has seen a number of companies quit and whose indices have fallen behind others in the US and Europe.
According to recent data from accounting firm EY, the London Stock Exchange saw a subdued first half of 2023, with 18 IPOs issued raising £593m following similar trends to 2022.
During the first six months of 2022, there were 26 IPOs, issued which raised £594m.
While these figures are in line year to year, they are down massively from the 47 IPOs issued during the first half of 2021 which raised £9.4bn.
EY said IPO performance continued to be adversely impacted by high inflation, rising interest rates, and geopolitical pressures.
In a statement, Euronext said while it was disappointed CRH had decided to leave the exchange, it was continuing to work with the equity capital markets ecosystem to promote equity capital markets in Ireland and IPO as a viable funding option for Irish growth companies.
“It’s worth noting that the challenges facing Irish equity capital markets are not unique to Ireland and are being experienced by the UK and a number of EU markets,” it said.
“We see initiatives under way by individual EU countries to incentivise more IPOs on their markets and by the European Commission to make EU capital markets more accessible and attractive for small and medium-sized enterprises.”