Eager investors rush to invest as good-quality opportunities emerge

Billions of dollars worth of equity deals in recent days could provide a glimpse into the underlying demand for stocks.

Recent IPOs

Billions of dollars worth of equity deals in recent days could provide a glimpse into the underlying demand for stocks in a market that many have said is trading at frothy valuations. The recent evidence, however, suggests that hunger for good-quality companies remains undiminished among investors starved of high-profile offerings for a while.

The flurry of deals was sparked by US oil major Chevron selling down its 50 per cent stake in Caltex Australia on Friday in a $4.8 billion deal. Despite the size of the sale, total demand for the stock exceeded $10bn.

Early yesterday law firm Slater & Gordon turned to the market to raise $890 million to fund the $1.23bn acquisition of British law firm Quindell. In an indication of the strong demand, the book runners have given institutional shareholders just 24 hours to put in bids.

This is likely to be followed by the $3bn listing of accounting software firm MYOB, with Bain Capital expected to lodge its prospectus today. Bain is selling about $800m worth of stock.

Fund managers and analysts say investors continue to be ­attracted to share offerings that are well-priced and offer growth opportunities.

“There is appetite for new products because a lot of the listed stocks are not showing growth in earnings,” said Donald Williams, chief investment officer at Platypus Asset Management.

Australian companies have struggled to improve revenue as they focus on cost cutting. ­Deutsche Bank estimates that average earnings growth at the top 200 Australian companies stayed flat at about 2 per cent for the six months to December.

Despite this, Australia’s benchmark S&P/ASX 200 index has jumped nearly 8 per cent in the past three months, fuelled mainly by a rate cut by the central bank that has prompted investors to pour money into dividend yielding stocks.

“Despite the elevated risk at higher valuations, the fact is interest rates continue to be low globally. Investors are still attracted by yield,” said Jason Beddow, managing director at Argo Investments, one of the largest listed investment companies.

“In the current environment, companies that are paying dividends or doing capital management are more attractive for investors.”

Companies raised about $17.5bn in the IPO market last year, according to Bloomberg data, making it the best ever year for fund raising. That total included the $5.6bn Medibank IPO in November last year that dominated headlines and fuelled a surge in investor interest.

Since then, however, more than two dozen smaller listings have found it difficult to attract the same level of interest as investors eschew risky ventures and pricey valuations. Many of the newly listed stocks have continue to trade below their issue price several months after listing.

The situation could change though, as better-quality candidates appeared on the horizon and investors were armed with more cash, fund managers said.

“There is certainly more investor interest in equity raisings now than a couple of months ago,” Mr Beddow said.