Private investors should be extra choosy

By Peter V O'Brien

Friday 28th May 2004

Investors in some sharemarket new listings may fail to participate in the delight New Zealand Exchange usually expresses when another company joins the fold.

The exchange greeted 16 equity issuers in 2003 and 11 have either listed or are about to so far this year.

People who think subscribing for shares in a new public float or buying into an existing company when it joins the exchange will produce an instant capital gain should read the table of 2003's new listings.

It shows nine companies' shares sold last Friday at more than the "first" price, as defined in the table, six were below that level and one had no change.

There were ups and downs along the way, so some investors in the six could have gained, depending on when they brought and/or sold.

It was worth noting only four companies improved more than 10%, although two had spectacular gains in a relatively short period.

Oil and gas explorer Austral Pacific Energy has a promising onshore Taranaki exploration programme for this year but its main attraction was a 45% interest in the four billion cu ft Kahili onshore gas-condensate field.

The company and Natural Gas Corporation have agreements for sale of the gas, which is expected to flow within a few months.

NZX's share price benefited from the listing of other new companies, increased market activity, its position as an effective monopoly and solid profitability.

Clothing and Manchester retailer Postie Plus Group was an example of how important timing could be in share trading. The shares were listed in September and peaked at $1.37, a 37% gain from the public issue price of $1, before retreating to current levels of about 95¢.

Windflow Technology was an example of the interesting phenomenon whereby a new listing can show solid share price gains while having virtually no operating income. Investors bought the potential of a business.

A subsidiary, New Zealand Windfarms, has proposed construction of a 50 megawatt wind farm over four years on the Manawatu saddle. Windflow said the wind farm was expected to start generating electricity in 2005.

The company is obviously on the way to operating income, although that never has been a guarantee of profitability sufficient to earn an appropriate return on investment and give shareholders good dividend income and more capital appreciation.

Companies in the table, and those listed or listing this year, are subject to the usual vagaries of market sentiment, the economy and their business sector.

Astute management and the "better mousetrap" principle can lessen the impact of such forces but rarely eliminate them.

The market has had one investment company listed this year (Kingfish) and two with offers currently before the public; Colville Equities and Salvus Strategic Investments.

Mortgage broking franchisor Mike Pero Mortgages listed on Monday at 96¢, 4¢ below its $1 issue price but could recover. Mobile phone and radio systems specialist Team Talk traded at $2.15 after issuing shares at $1.75 each, and carpet manufacturer Feltex Carpet's offer was priced at $1.70 a share to raise more than $240 million.

The Feltex price was at the lower end of the indicative range, although the company is a solid, well-run operation, suggesting the market was having difficulty absorbing the heavy demand for money in new floats.

Children's clothing retailer Pumpkin Patch will test that proposition. The company offered up to 81 million shares to institutions.

It sought $97-113 million at an indicative price range of $1.20-1.40 a share in an institutional book build closing on June 4.

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