IPO - Patria: Shares Struggle Following A Dividend Cut Within A Tough Macro Environment

Summary

• IPO stocks have moved lower by 20% from their summer high as volatility strikes equity markets.
• Stocks with Latin America exposure face enhanced risks and earnings volatility.
• Patria Investments Ltd is a small-cap Capital Markets stock that continues to move lower while its valuation remains lukewarm.

IPO stocks went boom and bust over the last few years. I like to keep tabs on the Renaissance IPO ETF (IPO) for a check on speculative sentiment across markets.

Currently, the fund is not far from the low notched back in May just above $26. Its summer rally peaked in August near $38, and shares have already corrected 20% as we kick off fall.

One Capital Markets stock with big exposure to the often-volatile region of Latin America has struggled just the same.

IPO Stocks Turn South After A Summer Rebound

According to Bank of America Global Research, Patria Investments Limited (PAX) is the largest private markets asset manager across LatAm with Brazil and Chile being its two largest markets. The firm manages $28B in AuM across private equity, credit, infrastructure, and real estate. While the firm is focused on private investing in LatAm, it raises most of its capital from large limited partners in North America, Asia, and Europe.

The company has solid organic growth along with some upside from outside M&A. Patria continues to work on diversifying its businesses into new regions and asset classes, too. Unstable political and macroeconomic conditions pressure its valuation, however.

The Cayman Islands-based $2.0 billion market cap Capital Market industry company within the Financials sector trades at a 15.0 trailing 12-month GAAP price-to-earnings ratio and pays a seemingly sporty 4.9% yield, according to The Wall Street Journal . Just recently, the firm hired a new CFO after posting weaker than expected Q2 results, and cut its dividend back in August.

On valuation, BofA sees earnings growth as volatile, but with upside through 2024. A massive EPS growth rate late year gave way to negative real per-share profit growth in 2022. But a rebound is forecast for next year. Meanwhile, PAX's dividend is seen as growing big in 2023 to a yield in the high single digits, though I question what the yield will be following the recent dividend cut. Overall, the valuation looks decent, but the high yield is not a sure thing.

Patria: Earnings, Valuation, Dividend Forecasts

Looking ahead, Patria's corporate event calendar is light until its Q3 earnings date, which is unconfirmed for Tuesday, Nov. 8 BMO, according to Wall Street Horizon's corporate event data.

Patria Investments' Corporate Event Calendar

The Technical Take

PAX shares have been mired in a downtrend since the stock began trading in early 2021. I see important resistance in the $15 to $16 range, but there's also a big layer of shares traded in the $16 to $17 area. So the bulls have their work cut out for them if they want to reverse the trend.

There is perhaps some support at the July low near $12.50, but that does not look like an impressive bottom to me. Given the general trend of lower highs and lower lows, I would avoid the stock for now. Perhaps buying on a breakout above $17 could make sense or if a better bottom forms, an investor can buy the dip. Not yet though.

PAX: Shares Trend Lower Following Its 2021 IPO

Bottom Line

PAX is a struggling capital markets stock with sketchy geopolitical risks given heavy exposure to Latin America. In this uncertain global equity environment, sticking with Financials stocks with more stable dividends and earnings is the better play.

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