Disappointing to see the poor results of two recent floats.

David McEwen

Tuesday 8th November 2011 3 Comments

After years of waiting for new companies to come to the New Zealand market, it has been disappointing to see the poor results of two recent floats.

Lightbulb company Energy Mad (MAD) has seen its price drop by 15% in the few weeks it has been listed. This is perhaps forgiveable since the company is a small technology company and therefore high risk and likely to have a volatile share price.

Less encouraging is the poor start of retirement villages company Summerset (SUM). Its shares were sold to investors at $1.40, the lower end of an indicative range, but failed to provide a decent initial profit on its first day trading and since then has been sitting a slightly under the offer price. The New Zealand market is doomed unless it quickly finds a way to introduce some good companies at a reasonable price that will generate some wealth and excitement for investors.

Here's hoping the looming IPO of Trademe does better. I think the float will be well supported but only because individual investors like to invest in companies they are familiar with. With a price of $2.70 per share, it is at the top end of its anticipated price range and appears, at the least, to be fully priced relative to international equivalents.

Unfortunately, good companies that do decide to list on the local market don't last particularly long before they are taken over by international competitors.

However, despite some speculation that it could be the precursor to a takeover bid, there is no need to get too excited about the emergence of US institutional investor Blackrock on the Telecom Corporation (TEL) share register. Blackrock revealed recently it had built up a 5% stake.
Keep in mind that the $220m or so Blackrock has spent on its investment is a mere drop in the bucket of its $4 trillion or so in funds under management. The investment is spread over 16 entities and I believe this is just a routine investment into this part of the world. No doubt the dividend offered by Telecom is part of the appeal, which is very high by US standards.

I am not a big fan of Telecom and think the benefits of its breakup are already reflected in the price.

Once the Trademe float is over, the next excitement will be the float of some government-owned entities, principally energy companies, next year. I am convinced these will be priced to ensure a good start so investors should pursue these with enthusiasm.

Comments from our readers

On 9 November 2011 at 10:38 am Patrick Kerr said:

The only reason is they're overpriced.

On 9 November 2011 at 8:26 pm Peter Flannery said:

overpriced...EXACTLY!

On 14 November 2011 at 5:04 pm David Dransfield said:

Precisely. Over price a float in the present climate and this is what you get.