The O'Brien Column: Feverpitch revises focus after NCM funds prove insufficient

By Peter V O'Brien

Friday 14th June 2002

The Stock Exchange's New Capital Market (NCM) is proving less of a broad highway for small companies' capital raising and profit growth than envisaged when the facility was introduced in May 2000.

Online and interactive betting market specialist Feverpitch International told shareholders recently its two capital raising exercises had generated $1.7 million of $3 million sought.

That was insufficient to enable the company to carry out full launches into those markets as a betting exchange operator in its own right as detailed in initial and subsequent public offerings documents.

A letter to shareholders said it had become apparent the New Zealand market had limited appetite for companies with the "perceived risk profile" associated with technology stocks.

Feverpitch therefore had decided not to pursue more local funding at this time. It would seek funding opportunities at the appropriate time through strategic partnerships most likely from offshore markets.

Funds raised in the recent issue would be used to shift the company's focus of its efforts to an international sales and marketing programme to attract partners and licensees of Feverpitch technology.

The revised focus required much lower cash expenditure with accompanying lower revenue potential.

That seemed a fancy way of saying the less you spend the less you earn.

Feverpitch gave an example of matters that can bedevil the best-organised new business ventures.

The Hong Kong government passed legislation in May that effectively banned all gambling in the city unless it was carried out with the Hong Kong Jockey Club.

The action limited Feverpitch's ability to enter the market or to license its technology to participants willing to target Hong Kong.

Feverpitch identified changing legislation as a risk in its initial public offering prospectus and prudently held back on significant business development investments in Hong Kong.

Feverpitch was not the only company to find changed conditions affected business.

Submarines Australasia began a commercial submarine diving operation in Milford Sound on December 8.

The company said in March it had not achieved anticipated passenger numbers and bookings for the "deep-dive experience" were well short of expectation.

Events of September 11, frequently poor weather that disrupted flights into and out of Milford and a fatal aircraft accident in mid-January adversely affected demand.

There was also a change in the makeup of overseas visitors, with "high yield" American tourist numbers down significantly on last year.

Submarines Australasia' directors decided its then current business model was not sustainable.

They stopped operating the Antipodes vessel at Milford Sound from Easter.

The directors were evaluating all feasible alternatives in early March.

An obvious option was a deep-dive submarine operation in Queenstown where the company had consented to operate submarines in Lake Wakatipu.

Submarines Australasia may come again but its share price went from 27c on March 7 (the day before announcement of the Milford Sound shutdown) to 10c last Friday.

Feverpitch was 50c in March and is now 33c.

Other NCM companies also found life tough in terms of share price performance.

Mowbray Collectables and Mooring Systems did best in share price appreciation terms of companies listed on the

The former was the first company under the system, listing in April 2002.

It acquired the stamp, rare book and associated businesses from John Mowbray, now the listed company's chairman, in December 2000.

Mowbray's relative success on the share market could have something to do with its lack of association with technology - as well as its record of reasonable profitability.

The shares closed last week at 78c, compared with a listing price of 50c and an all-time high of 84c.

NCM companies with technology links have fared poorly on the market, some because they appear unable to meet operating expectations.

Cabletalk Group, for example, said in April its latest estimates for the year ended March showed the company would fall well short of the net earnings forecast in the prospectus.

There was likely to be a net loss of about $1 million.

The group is involved in telecommunications network servicing.

Cabletalk may get back on track but the recent revised forecast cam soon after a fairly buoyant interim report and would lower investor confidence the shares were from 47c in April to 33c last week.

Investors have become cynical about technology companies' prospects in the absence of solid continuing earnings and tend to put most of them in the discounted price basket.

The market has also discounted several NCM companies on general ground as well as for their technology links.

Announcements that revise profit forecasts downwards prune operational developments or do both, do nothing to boost the NCM concept.

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