From the Australian Financial Review, European Correspondent - Hans Van Leeuwin (10/08/20)
London | When ASX-listed Neometals last week announced a 50-50 joint venture with German company SMS to recycle materials from used lithium-ion batteries, you might have thought this signalled its grand entry into the European market. But in fact, the company was kind of there already.
There's a big audience for Australian resources stocks in the Frankfurt financial community. Getty
German retail investors have been able to buy and sell Neometals shares on the Frankfurt Stock Exchange (or Deutsche Börse) for more than four years. And Neometals isn’t the only one: roughly a third of ASX-listed companies have what’s loosely called a “dual listing” in Frankfurt, with the 744 stocks ranging from A-Cap Energy and Abacus Property to Zenith Minerals and Zip Co.
“Australia is one of the most interesting stock areas in the world for retail investors in Germany,” says Oliver Roth, head of specialist floor equities at German broker Oddo Seydler.
“What’s really interesting is all things to do with commodities. Germany is not rich in commodities – you can’t trade German miners.”
So German retail investors looking for resource exposure, or geographic diversification have to go further afield, mostly to Australia and Canada. And Deutsche Börse tries to make it easy for them.
There are nine German floor traders like Oddo Seydler, who act as "market makers" for foreign-listed stocks in Frankfurt. This means that they apply to the exchange to create an over-the-counter (OTC) listing of any company listed on a reputable exchange, such as the ASX. They pay a small fee, and Deutsche Börse’s system puts the OTC shares on the same platform as regular stocks.
“In legal terms, trading does not take place on an EU-regulated market, it takes place on our exchange-regulated market. The majority of people don’t care about that, and in practical terms you can trade blue-chips on the same page as all these OTC shares,” says Cord Gebhardt, board member of the Frankfurt Stock Exchange.
"It doesn’t mean that trading is Wild West. Of course trading is regulated and we have trading surveillance here to make sure it’s all in good order."
The process can take place entirely without the knowledge of the Australian company concerned. They may or may not want German investors on their register – too bad.
Sticky investorsBut quite a few companies are pretty happy about it. It diversifies the shareholder base, and the Germans are reputedly pretty sticky investors.
“They very much take a long-term strategic view on investments. They’re not traders. Once they invest, they’re very sticky. They’re interested to know what the strategy is, what the long-term play is” says Luke Reinehr, CEO and chairman of Kalamazoo Resources.
That probably explains why the volume of trades isn’t huge: investors aren’t cycling in and out. In the first half of this year, Frankfurt OTC transactions involving Australian shares totalled just under €150 million ($247 million).
“If the market is correcting in the mining sector, the Canadians and Australians will sell first and the Europeans will hang onto their shares because of their mentality – they are long-term investors,” says Wolfgang Seybold, chairman of German investment and investor relations firm Axino.
“They hang in, they go down with the cycle and at the bottom of the cycle they still have those shares in their portfolio.”
With a lot of Australian companies they just get the dual listing and then they think investors will find them.
— Matthew Reynolds, corporate consultant at advisory firm DGWA
If Australian companies are keen on courting German shareholders, it’s apparently not enough just to have a broker "make the market" in the stock.
“What you find with a lot of Australian companies is, they just get the dual listing and then they think investors will find them,” says Matthew Reynolds, a Frankfurt-based Australian with German advisory firm DGWA.
“Basically they don’t: unless you get out and engage with the German stockholders and the media, then investors are not even going to look twice at a company.”
“I have done a fair bit of marketing in Germany and Switzerland, because there was interest in that part of the world in what we’re doing,” says Keith Coughlan, executive chairman of lithium miner European Metals Holdings.
Reinehr agrees: “You’ve got to go and press the flesh and speak to potential investors. We have relationships in Germany, we do regular online interviews, we get our ASX announcements translated.”
Stefan Müller, DGWA’s CEO, says the culture of approaching German investors differs from that in Australia.
“Many Australian mining companies use blue-sky promoting houses, one-man shows, then they spread out nice ideas. You can still do that here .. [but] if a company is too blue-sky and too pushy then the serious investors simply don’t invest in these companies,” he says.
COVID-19 has put the skids under the conference circuit, sending most of it online, and has also stopped Australians travelling to Germany to hawk their wares. Still, if things ease up in 2021 and you happen to find yourself in Frankfurt, you shouldn’t be surprised to bump into a Perth mining boss or two.