Few complaints for investors in new listings

By Peter V O'Brien

Friday 1st October 2004

Investors in the stock exchange's 14 new listings or floats this year did marginally better than people who brought into the 16 that joined the exchange last year.

A definition of "better' related to the number of companies whose prices rose from the first price (issue price or price on listing if there was no issue) to a particular date.

The particular date for 2004 listings was September 27 (Monday), as shown in the table.A comparison of 2003's 16 new listings was made (NBR, May 28) based on their share price gains or losses.

There were additional price changes in the past four months for companies that listed in 2003 but there was no need to complicate the exercise, given that differences between rises and falls were marginal in that period.

Investors who chose stocks that enjoyed solid post-listing price gains obviously did better than people who based stock selection decisions on an assumption (rightly or wrongly) that their choices would show considerable long-term price growth.

The best-performed, so far, among 2004's 14 new listings was children's clothing specialist Pumpkin Patch with 64% gain from an issue price of $1.25 a share in June to Monday's $2.05. That could be compared with the situation in May, when New Zealand Exchange showed an extraordinary price gain of 150.5% from its "first price" of $4.60 in 2003.

The reasons for different price performance among the 14 companies in the table would be as varied as their industries.

Milk production licensor A2 Corporation has yet to stimulate substantial investor interest to increase the share price.

The company licenses its intellectual property rights in a milk production system, rather than producing milk itself and such concepts are often difficult to project to investors, irrespective of their validity and the merits of the final product.

Ashburton Building Society (the organisation's real name, as opposed to its preference for the brand name "ABS Canterbury") did well since listing.

That was expected because it had an excellent operating record in the wider Canterbury region and subsequently improved it.

Can West Media Works did better in its reincarnation than in its first life when it was confined to television, before addition of a significant radio network.

The share price could also have benefited from the company operating in the media sector, where investors have been starved of vehicles.

Dominion Finance had a modest debut but current shareholders should stick with the stock and look at the history of the sharemarket's once thriving finance company sector.

Finance companies get geometric operating profit growth, assuming they are properly managed, because every term loan that is written contains future profit, which is realised through the payment of instalments comprising interest and principal.

Companies could continue to be profitable for years if they wrote no new business, reduced overheads to a skeleton collection staff and confined activities to banking loan repayments.

Just Water was expected to go to a handsome premium on listing, after a generous issue price but the result was spectacular.

Solid operating profit gains would be needed for similar share price appreciation in future.

Radio systems group Team Talk issued shares at $1.75 each.

They went to $2.30 on listing but subsequent share price growth was much slower and normal, given the initial run.

The company is one of the few operating in broadly-defined "technology" which came to the market with a solid operating record.

Mortgage broker franchisor Mike Pero Mortgages issued shares at $1 each but they listed at 96¢ and have slipped since, despite the company's profit for the four months ended June being ahead of forecast.

While there is nothing unusual in actuals beating forecasts, the result was good, leading to the thought that companies involved in licensing (of which franchising is a variation) can be discounted on the market.

Share price slippage for the other companies in the table was minor but that fact would do little for people who looked for good stag gains.

Taken overall, investors in this year's new listings should have few complaints.

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