Something bold… something old
Do new listings really offer so much more?
NEW LISTINGS CONTINUE to flow to the JSE in healthy numbers. What’s probably more important is that the new listings – well, most of them – are being well received by investors who, we suspect, comprise mainly retail (or ordinary) investors rather than institutions.
New listings are great for frothing up sentiment. Prospectuses allow investors to peruse key detail concerning major growth initiatives and also offer insights into potential corporate action (especially where large sums have been raised ahead of listing).
You only have to look at the vibrant market debut by staffing services group Kelly and construction group Raubex – as well as the frothy sentiment covering the JSE’s new alternative market, the AltX – to see how investors are enthusing over new listings.
The big question, of course, is whether new listings are proving too much of a distraction for retail investors (who can be an excitable bunch). Are newcomers, in fact, in their determination to latch on to the latest growth story, drawing attention away from perfectly capable contenders that have built up long track records on the JSE?
Professional portfolios – ie, unit trusts and other collectives – remain rather shy of new listings, save for perhaps a selected nibble here and there. For the most, pre-listing shares offers don’t offer asset managers the sort of volumes they’d like to place in a portfolio. Others have simply declined to participate.
Naturally, much has been made of the fact that the flurry of new listings includes top-quality contenders – if we ignore for a moment one or two barking dogs (such as Wellco or Acc-Ross). What’s more, many of the new listings are well-established businesses with long-time or even family shareholders.
But there’s a myth attached to new listings – and here we’re not talking about legends of great stagging profits made by punters by buying heavily into pre-listing share placements.
It’s the notion or perception that new listings come to the market with fresh legs and fresh capital, ambitious growth plans as well as a fairly good chance of thrashing the prospectus forecasts. Those perceptions are certainly reflected in the vibrant share prices of a number of new listings, where forward price:earnings multiples may be regarded as demanding.
AltX listings such as Alert Steel, Blue Financial Services, Rare Holdings, TopFix and Telemaster have almost become legends in their own lunchtimes in terms of exponential gains in share prices since listing. Building industry aligned shares such as Austro and Afrimat have also seen remarkable surges from pre-listing share placement prices.
Scan the newer listings – especially those shares listed on the AltX – and you’ll pick up historical price:earnings multiples of between 25 to 40 times on more than a few occasions.
Some of the new mining shares – companies that might have been regarded as marginal in anything less than a full swing commodities boom – are also top rated, with some valuations running into the billions of rand.
To be perfectly frank, we haven’t yet seen the heady valuations accorded to some of the technology, media and telecoms (TMT) stocks in the late Nineties listings boom. At that time p:e multiples shifted from hun- dreds to even thousands before realism shattered the myth of many of the new economy stocks. But the question is whether the new listings – with markedly higher valuations – are really better to pocket than sticking with tried and tested stocks available arguably on more reasonable p:e multiples.
Naturally, things should be measured over at least the medium term.
However, Finweek would be fascinated to see in five years’ time comparative growth and returns from a selected number of “something bold” and “something old” listings.
Here would be our head-to-head contest featuring a dozen “something bolds” and “something olds” (“something bolds” first):
• Austro versus Masonite • Afrimat versus Group Five • Raubex versus M&R Holdings • Workforce versus Adcorp • WG Wearne versus Aveng • Taste Holdings versus Spur Corporation • Gooderson versus City Lodge • Blue Financial Services versus African
Bank Investments • Wits Gold versus Gold Fields • First Uranium versus Kumba Iron Ore • Great Basin Gold versus Harmony • GVM versus Metorex
Perhaps Finweek will revisit that list in 2012 (when the 2010 Soccer World Cup has long gone) to gauge which contenders really had the legs for the long run.
We have our suspicions (which we’ll keep to ourselves in the interests of partiality), but this may prove a most interesting exercise…