IPO market spills and thrills

Solid ... Few praised the QR National float but it has yielded good capital gains and dividends.

Spare a thought for companies that listed on Australian Securities Exchange in the past five years. The global financial crisis has made life hell for most initial public offerings and crushed many that dared to list. But beneath the wreckage have been some surprisingly strong performers and terrific investment opportunities – not that you would know it by looking at the IPO market.

The float pipeline seems more like a dribbling tap these days as risk-averse investors shun new listings. There seems little need to buy unproven listed companies when so many established ones trade at lower valuations.

That also creates an opportunity for eagle-eyed investors who know the best time to buy is when everybody else is selling, or overlooking information. With that in mind, BRW has analysed the past five years of IPOs to coincide with the five-year anniversary of the start of the GFC.

Examining 450 floats since August 2007 revealed the top 10 IPOs overall. We also found 10 smaller IPOs that deserve greater attention. Floats were chosen not only on share price gains; I sought higher quality companies able to raise capital in a treacherous market and provide sustained gains for shareholders.

The most startling finding was that since August 2007, four in five floats have been losing money for investors. About 230 of the 450 IPOs have more than halved since listing and 100 of them have plunged more than 80 per cent compared with the issue price. Those odds suggest most investors should avoid speculative floats and stick to higher quality IPOs or more established companies.

But there have also been big gains for those prepared to sift through IPOs and take high risks. The best float has to be the West Australian gold producer Silver Lake Resources, which raised $30 million in November 2007 at 30¢ a share. Those shares are now worth $3.27 and Silver Lake, capitalised at $46 million on listing, is valued at $737 million.

Only Syrah Resources, which has African exploration projects, topped Silver Lake’s performance. It sought $4.2 million in September 2007 through the issue of 20¢ shares. These have soared to $2.45 in the past 12 months amid strong exploration results at its Balama graphite project in Mozambique. Syrah also has copper, uranium and minerals sands projects in Africa.

Those jaw-dropping gains, of course, came with a huge risk on listing. Impressive gains were also found in profitable industrial companies with more certain prospects.

It is hard to go past QR National as the best float over five years for conservative, long-term portfolio investors. QR did not have much competition; Westfield Retail Trust, a reasonable performer since listing, and the woefully performed Myer Holdings, were the only other large IPOs of note in the period.

QR raised just over $4 billion in an awful market for IPOs in 2010. Many commentators did not rate its prospects highly but its $2.45 issued shares (for retail investors) now trade at $3.53, with modest dividends along the way. After solid gains, its shares are due for a pause. The rail operator’s key Queensland competitor, Asciano, looks the better buy at current prices.

Carsales.com was another standout industrial float in the past five years. It always looked a winner but few at the time realised just how far and how quickly it could run. Shares in the car advertising website, issued at $3.50 in 2009, have soared to $7.21 after impressive profit upgrades. This column recently named Carsales.com as one of the top mid-cap stocks for 2011-12.

Other internet stocks also make BRW’s top 10 IPO list. New Zealand-based online auctioneer Trade Me Group (BRW publisher Fairfax Media owns 51 per cent of it) raised $276 million in December and its shares, issued at $2.04, have leapt to $2.98 in a weak market.

A much smaller website IPO, iProperty Group, has rallied from a 25¢ issue price to $1 as the market rerates its strong growth prospects in Asia and its rapid revenue growth.

A few Queensland IPOs have impressed. NextDC raised $40 million in 2010 to build specialist data centres and capitalise on the trend of more companies outsourcing data storage. Its $1 shares have doubled after peaking at $2.36. Shares in another 2010 IPO, Corporate Travel Management, have raced from $1 to $2.44 and defied the travel industry sceptics.

Mining service providers Maca and Mastermyne Group are other IPO standouts. Maca has raced from a $1 issue price to $2.42 and Mastermyne’s
$1 issued shares are $1.97. Alliance Aviation Services just missed the top 10 IPO list.

If these and other floats mentioned in the BRW top 10 IPO list can do well in a terrible market for floats, you wonder what they will do when the bear market eventually retreats and some huge headwinds turn into tailwinds. And you also wonder so many investors have given up on better-quality IPOs.

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