Hunting for quality in IPOs

The failure of the insurer Greenstone to get its near $1 billion float away has some market observers thinking that the IPO pipeline might be drying up, particularly after a poor share market performance in the month of May.

What’s really happening is that funds management bosses are just becoming a bit more choosy in the quality of stock they taking up – and the forward multiple earnings figures being used to value them – in the light of some recent bad experiences.

The other thought is that many of the new offerings are in industries usually not that easily understood by share market analysts.

It doesn’t help that some of the biggest disappointments came from the more anticipated IPOs since debut. The biggest was Medibank Private with the retail float price of $2 now being revisited at $2.05 after trying ton get to $3. The resurrected Channel Nine didn’t do anyone any favour this week with it profit warning and the shares have plunged to $1.70, nearly 25 per cent off its December 2013 float price.

But hotelier Mantra Group is one of the success stories, with its stock jumping from $1.80 to $3.85 since its float in June 2014. Organic dairy company Bellamy’s has also soared from a $1 offer price to $4.26 since listing in August 2014.

So it’s not all bad news with many big offerings still said to be on track for later this year. The biggest will be float will be registry Link Market Services, which is looking for a valuation in the $2.5 billion to $3 billion range. Despite being delayed, timber supplier Carter Holt Harvey is still expected to be trading on the ASX before the end of the year with a market cap in excess of $1 billion. Mortgage group Pepper Home Loans is another readying pre-float roadshows as is cargo freight software supplier WiseTech Global. Both fit into that $1 billion category

Others confirmed to be on their way to trading screens in the near term include a $450 million unit trust deal offering from dairy group Murray Goulburn; manchester retailer Adairs Ltd, with a $218 million raise; outdoor advertising group QMS Media, raising $90 million; and kitchen sink maker Shiro Holdings, raising up to $50.5 million.

The Australian Financial Review says there is also a sway of investment and property trust funds on the way,  including Argo Global Listed Infrastructure fund, which is targeting $600 million; John Pereira’s new India Fund, worth up to $100 million; and GARDA Diversified Property Fund, seeking $70 million.

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