Some­thing bold… some­thing old

Do new list­ings re­ally of­fer so much more?

Finweek English Edition - - Companies & markets - MARC HASENFUSS

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…


Source: I-Net Bridge

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