(Bloomberg) -- Spanish beauty and fragrance group Puig Brands SA’s trading in its first day as a public company was muted, dashing hopes of a triumphant cap on the European initial public offerings market’s recovery.

Puig shares traded at €24.50 each at 5:18 p.m. in Madrid on Friday, in line with the pricing of its €2.6 billion ($2.8 billion) IPO, the biggest in the region this year. The stock briefly gained as much as 8%, before quickly giving up the advance. 

The opening day was closely watched by investors evaluating the strength of a revival of IPOs in the region after two dull years. Pricing the offering at the top end of a marketed range showed strong demand for Puig’s shares, but the flat trading suggests the pool of investors who missed out may be relatively shallow.

“There will always be concerns over whether the stock represents value for those jumping onboard at its inception,” said Joshua Mahony, chief market analyst at Scope Markets. 

Puig selling shares in the IPO at €24.50 each implies a price-to-earnings ratio of 29 times, according to Bloomberg Intelligence, in line with the broader cosmetics sector. It’s a valuation that’s more than 10% higher than closest peer Inter Parfums Inc., but a 10%-20% discount to L’Oreal SA, the analysts said.

What Bloomberg Intelligence Says:

Puig’s likely €13.9 billion market-valuation target — it announced shares will be priced at the top of the €22-€24.50 bracket ahead of the May 3 IPO — implies a P/E ratio of 26-29x, based on our earnings-scenario range. That’s in line with the cosmetics sector and more than 10% higher than closest peer Inter Parfums (24x), but Puig has more than 3x its sales in a market where scale matters. It represents a 10-20% discount to L’Oreal (32x). Puig has strengthened its brand portfolio — it has two of the top-10 prestige fragrances globally (Paco Rabanne and Carolina Herrera) — and the IPO adds scope to make strategic acquisitions, bolstering future brand equity.

— Andrea Ferdinando Leggieri and Deborah Aitken

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Puig’s sluggish opening day contrasts with the flying starts made by Galderma Group AG in Zurich and CVC Capital Partners Plc in Amsterdam when they began trading earlier this year. Still, the early response to the stock may not reflect the market’s full assessment, Scope’s Mahony said. 

“The volatility seen over the course of the first week should not necessarily scare off long-term investors, with companies typically needing a bedding in period before markets start to price in the perceived real value of the company,” he said.

While CVC fixed its IPO at the middle of its initial range, Galderma also secured top-end pricing. Both stocks surged over 20% in their first trading sessions in what was seen as evidence of renewed appetite for European listings. 

Even with Puig’s subdued debut, the European IPO market is in much better shape than it has been anytime in the past 18-24 months. Companies in the region have raised about $12 billion in the year to date, more than twice as much as in the same period in 2023, according to data compiled by Bloomberg.

Puig owns brands such as Rabanne, Carolina Herrera and Jean Paul Gaultier. Over the years, it has branched out into skincare and makeup, most recently with the acquisition of British makeup and skincare brand Charlotte Tilbury. That expansion has helped the company more than double its revenue in the past decade. 

The IPO size could increase to as much as €3 billion if an over-allotment option is exercised in full. That would make the listing Spain’s largest since that of airport operator Aena SME SA in 2015, according to Bloomberg data. 

The share sale gives Puig a market value of nearly €14 billion. Members of the 110-year-old Puig dynasty are the biggest individual winners in the IPO. Two third-generation family members work for the group, which is run by Marc Puig Guasch, the chief executive officer and a grandson of the founder. He and his cousin, Manuel Puig Rocha, are the only family members on the board.

Following the listing, the Puig family will hold more than 90% of voting rights through their Class-A shares, which have five votes each compared to one for the Class-B stock, according to its prospectus. 

The company has said it intends to use the proceeds to refinance recent acquisitions, pay down debt and to make future investments.

Goldman Sachs Group Inc. and JPMorgan Chase & Co. led the IPO, and Bank of America Corp., BNP Paribas SA, CaixaBank SA and Banco Santander SA acted as joint bookrunners. The stock is trading on the Madrid Stock Exchange under the symbol PUIG.

--With assistance from Clara Hernanz Lizarraga and Isolde MacDonogh.

(Updates throughout with context.)

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