COM­MENT

Financial Mail - Investors Monthly - - Contents -

Flurry of new list­ings pro­vide wel­come fil­lip

The flurry of new list­ings on the JSE — in­clud­ing the spec­tac­u­lar de­but of fund man­ager Syg­nia (de­tailed in our cover story) — is pro­vid­ing a wel­come fil­lip af­ter a tough year of trad­ing for most pun­ters. It is a lit­tle strange to see premium priced list­ings when sen­ti­ment for the resources sec­tor is still look­ing so brit­tle. It is also in­ter­est­ing to mon­i­tor the flow of new list­ings (out­side the prop­erty sec­tor) when some of the dar­lings of the late noughties list­ings boom are strug­gling for vi­a­bil­ity (El­lies, Wearne, Esor, Im­balie) or in limbo (Chem­spec, Blue Financial Ser­vices).

Per­haps then a lit­tle scep­ti­cism should also be ap­plied to the new list­ings.

In the­ory, new list­ings of­ten in­volve in­sid­ers with in­ti­mate knowl­edge of a com­pany and its sec­tor sell­ing shares or of­fer­ing new shares to out­siders who prob­a­bly lack that in-depth insight.

Com­pany in­sid­ers should know when it’s the op­ti­mum time to sell or of­fer new shares — and also when it is the most ap­pro­pri­ate time to buy shares back.

Frankly, one might think that fraught lo­cal eco­nomic prospects mixed with con­fus­ing de­vel­op­men­tal sig­nals from gov­ern­ment would not pro­vide the best en­vi­ron­ment for lo­cal com­pa­nies to tap in­vestors for cap­i­tal or to off­load shares.

Per­haps that’s why so many new list­ings of late have in­volved off­shore prop­erty pitches, or of­fer hedges against the state’s in­ep­ti­tude in pro­vid­ing ba­sic ser­vices.

But in truth should we re­ally be sur­prised by the cur­rent bout of IPO (ini­tial pub­lic of­fer­ing) fever? For the past three years com­pa­nies have man­aged to raise a bus­load of new cap­i­tal with rights of­fers and shares-for-cash place­ments. This has cer­tainly not been lim­ited to prop­erty coun­ters and high growth com­pa­nies with in­ter­na­tional am­bi­tions (like Medi­clinic, Oceana and Wool­worths). Smaller com­pa­nies have not bat­tled to get fresh cap­i­tal either — fran­chise spe­cial­ist Taste Hold­ings and small prop­erty group Fair­vest be­ing the lat­est.

If there is a sur­feit of money slosh­ing around the JSE and wide-eyed re­tail in­vestors are de­ter­mined to back fresh op­por­tu­ni­ties for high growth, then the rush of new list­ings is likely to ac­cel­er­ate in 2016.

The chance to “stag” (buy­ing a share in a prelist­ing of­fer in the hope of sell­ing at a much higher price on list­ing) will be enough to at­tract pun­ters to IPOs, es­pe­cially with Syg­nia, Bal­win, Ad­vanced Health and An­chor mak­ing such strong mar­ket de­buts.

The ru­mour mill sug­gests more list­ings in prop­erty, pri­vate ed­u­ca­tion, al­ter­na­tive en­ergy, spe­cialised tech­nol­ogy and financial ser­vices as well as a hand­ful of un­bundling op­por­tu­ni­ties from ex­ist­ing list­ings.

The best re­al­ity check on such de­vel­op­ments is prob­a­bly to dig out those old prelist­ing state­ments from the 2006 to 2008 list­ings boom — and com­pare the ra­tio­nale for com­ing to mar­ket with the cur­rent state of those com­pa­nies.

This might seem te­dious. But hind­sight does in­tro­duce a sense of re­al­ism to pro­ceed­ings, and high­light how the best-laid plans on pa­per can quickly get crum­pled by over-am­bi­tious en­deav­ours.

The ben­e­fit of do­ing a bit of home­work is that in­vestors might un­cover sur­vivors from the last list­ings boom that of­fer up­side po­ten­tial un­der­pinned by tan­gi­ble value. Can in­vestors re­ally put a price on an ex­ec­u­tive team that is street­wise and un­likely ever again to de­part from a lean, mean op­er­a­tional ap­proach?

❛❛ In the­ory, new list­ings of­ten in­volve in­sid­ers with an in­ti­mate knowl­edge of a com­pany and its sec­tor sell­ing shares

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