the aforementioned fact that, at bottom, the public has a real aversion to the kind of small issue that it bought so readily in its careless moments. Many of these issues fall, proportionately, as much below their true value as they formerly sold above it.”
Besides scrutinising the leadership of a company planning to go public, clues as to whether it is likely to sink like a stone after its flotation can be garnered from who its JSE sponsor and other advisors are.
Checking the credentials of the financial institutions which manage IPOS is not as easy as checking up on its CEO, as advisers with a history of bringing duds to the market tend to rebrand themselves.
For instance, Arcay Moela brought to the JSE Pinnacle Point, IFCA Technologies, Ububele, Delrand Resources and others that have been conveniently forgotten by share data providers, so as not to scare off a new generation of inexperienced investors who think the trick is to get in early. It now trades as Arbor Capital.
Besides its involvement in Pembury Lifestyle, whose share was suspended for failing to produce audited results just nine months after its Altx debut in August 2017, Arbor has not been too active on the IPO front recently — indicated the current bull market has not caused the IPO merry-goround to swing that wildly yet.
Another example of a recent IPO whose share is already suspended for failing to produce audited results within the JSE’S deadline is fast-food franchiser Gold Brands Investment, whose original JSE sponsor was River Group, which was subsequently replaced by Merchantec Capital.
Avior Capital Markets, which traded at about R1.60 when it made its debut on the JSE in June before tumbling to about 50c in April, fared better than Pembury, in that it did release its results for its financial year ended April in July, reporting that its aftertax profit was less than sixth of that reported in the prior year.
A bad omen for Avior shareholders was its first Sens statement announced the resignation of the chair of its audit and risk committee with immediate effect. It was soon followed by the departure of its finance director. Its new finance director and auditors found their predecessors had made material accounting errors, forcing them to restate the previously issued results.
Since Avior does appear to be cleaning up its act, it is too early to judge its sponsor, Pallidus Capital, whose sole IPO so far appears to be Avior.
The share price of Kore Potash, which placed its shares at A$0.20 — which equated to R1.82 — has halved to about 90c since it listed in April.
Australian mining companies that dual-listed on the JSE have tended to suffer from low trading volumes.
For instance, Resource Generation spent more than three years on the JSE before its share recorded its first trade.
Liquidity is a double-edged sword, as demonstrated by Kaap Agri, whose move from over-the-counter trading to the presumably better price discovery of the JSE resulted in the price of its shares sliding from about R55 to under R42.
Graham gave two reasons why investors should shy away from IPOS. “The first is that new issues have special salesmanship behind them, which calls therefore for a special degree of sales resistance.
“The second is that most new issues are sold under favourable market conditions — which means favourable for the seller and consequently less favourable for the buyer,” he wrote.
Libstar CEO Andries van Rensburg with Wendy Luhabe, lead independent nonexecutive director, at the JSE in Sandton at the company’s JSE debut in May.