The climate for new sharemarket floats remains red hot and the game as ever remains a crapshoot.
The seemingly random performance of our initial public offerings (IPOs) is reflected in the recently listed gold plays. Monger Gold listed on July 6 at a 40 per cent premium, while Askari Metals was pertly out of the blocks a day later with a first-day gain of up to 35 per cent.
But Lode Resources flopped 32 per cent on listing on July 2, while Barton Gold fell 22 per cent on its debut on June 28.
If it all looks like a bit of a punt, you’re right: shares in online sports betting hopeful Bluebet Holdings soared 55 per cent on debut and have held these gains.
On July 1 the IPO market faced its earliest and sternest test for the new financial year, with online property settlements platform Pexa Group debuting at a 5 per cent gain.
Tapping the housing boom, Pexa’s vendors raised $1.175bn in the biggest IPO to date for calendar 2021.
There’s certainly an indistinct pattern among the bigger brand name IPOs. In the go-go non-bank sector, Latitude Financial is off 7 per cent since listing in April and Pepper Money shares have fallen 11 per cent since the lender listed in late May.
The best performer so far this year is the Perth-based internet provider Pentanet, which has tripled in value since listing on January 29.
Penta who? Pentanet provides fixed internet services for homes and business.
Firebird Metals has also gained 200 per cent, on the back of its manganese exploration in the Pilbara. Primarily a steel-hardening ingredient, manganese is also gaining street cred as a component of lithium-ion batteries.
Speaking of which, lithium listings have also done well, with Lithium Energy up 75 per cent and Global Lithium Resources climbing 27 per cent.
WA nickel explorer Lunnon Metals has gained 50 per cent since listing in mid-June.
Pet-minding play Mad Paws delivered a 20 per cent first day gain but is now in the doghouse with its shares down 15 per cent.
How to pick a successful IPO
The moral of the tale is that when it comes to picking an IPO winner, there’s no distinct bias between industries and sectors, or the size of the offering.
By whipping up demand, brokers create “extreme pricing dislocation events”. In other words, the company could well be valued at more than it should be, but if you get your timing right that’s fine.
On the issue of timing, it sometimes pays not to fall in love with your new bundle of joy.
So far this year only four stocks have improved from listing day to the present. The simple lesson here is that if there is money on day one, take it off the table.
A case in point is skincare and consumer health play EZZ Life Sciences, which closed 132 per cent higher on its first trading day in early March but has now sunk 7 per cent below the listing price.
And need we mention the troubled tech house Nuix, which soared 50 per cent on listing in December last year but has now lost 70 per cent of its value?
In sizing up an IPO, it’s always worth looking past the broker spin and getting a clear understanding of the vendors’ motive for selling out (or, more likely, selling down).
Investors should also know the level of “pre money” investment in the company and what these backers paid for the stock. An early investor who got in at, say, 2c won’t care too much if a 20c stock is trading at 15c.
During the pandemic, this meant a rush to providers of e-commerce, meal kits and buy-now-pay-later stocks.
A private equity sell down – and that’s always a warning sign – online retailer Adore Beauty listed at $6.75 in mid-October. The shares rose 2 per cent on the first day but the upside was cosmetic, with the shares now 30 per cent below the IPO price.
But hang on again! Online luxury retailer Cettire is in clover, with its shares up more than 430 per cent since listing in mid-December at 50c apiece.
Well-heeled but locked-down mouse-clickers have flocked to Cettire’s offerings, with the company upgrading its prospectus forecasts in May.
Which once again raises the suspicion that – unlike what the politicians tell us – we’re not all in this together.
Tim Boreham edits The New Criterion
tim@independentresearch.com.au
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