Product, not presentation, is key to success

By Peter O'Brien

Friday 18th June 2004

The mixed performance of recent new listings emphasises the need for promoters to give investors a better product rather than a better presentation if they want a successful float.

It is the "better mousetrap," mentioned in The National Business Review of May 28, that can lessen, but rarely eliminate, the impact of market sentiment, the economy and the vagaries of a company's business sector.

Better mousetraps often have the additional, intangible advantage of sexiness in investors' eyes.

Sexiness can be defined as a product or service that grabs the imagination, even to the extent of being trendy.

A sexy float has built-in superiority over a company that seems mundane, no matter how worthy its business and financial record and the status of its directors.

Wheeling out a board of "name" directors never did anything for a new float if the product or service failed the better mousetrap and sexiness tests.

Much has been made of the recent flood of floats in the context of several dull sharemarket performances after listing, including those selling at less than issue price.

That argument ignored the fact that sexy better mousetraps were market hits.

Some evidence of product being favoured over presentation was seen in the experience of the two investment company floats: Colville Equities and Salvus Strategic Investments.

Colville was pulled from the market and Salvus' $50 million issue was extended beyond the original closing date.

People involved in both companies reckoned the poor performance of some recent floats and their number caused the problem.

They could have looked at things another way.

Neither Colville nor Salvus had a "product" and barely had a service, certainly not a proven one.

The sale of their floats was based on presentation, with an emphasis on the experience and unquantifiable status of directors and managers.

Such exercises would be well down the pecking order or investors' preferences when they have plenty of choices.

It is also worth asking how promoters with such market experience and status apparently misread the investment climate and whether they would misread it when managing and investing the proceeds of the floats.

Floats that did well after listing included those where the issue price was set at the lower end of an indicative range. There were exceptions even there.

Feltex Carpets, for example, issued shares at $1.70 each, which was at the bottom of the indicative range, fell below issue price after listing and was still there this week.

The company had the status of a solid manufacturer, with a good financial record, but it was a comparatively large issue at $240 million and lacked sexiness.

Children's clothing specialist Pumpkin Patch issued shares at $1.25, a price towards the bottom of the $1.20-1.40 indicative range, but went to $1.38 on opening day, a 10.5% gain.

Pumpkin Patch was a well-organised float. It had the advantage of sexiness, with a sound, almost cultish, product and an image of Kiwi made good on the international scene.

Mortgage broker franchisor Mike Pero Mortgages issued shares at $1 but listed at 96¢, while mobile phone and radio systems group Team Talk's shares were issued at $1.75 and went to $2.30 on listing.

It would not be overstating the case to suggest that, financial factors and so on being equal, telecommunications were sexy while mortgage broker franchising lacked sexiness.

Then we came to water company Just Water, which issued shares at 50c each and listed on Tuesday at 66c, a premium of 32% on issue price.

Just Water has an excellent trading and financial record.

Marketing and sales of bottled water under various brands and provision of ancillary services, such as dispensers and coolers in commercial and industrial premises, has become a rapid growth industry.

There is a view that the industry created a "need," rather then satisfying one, particularly in a country such as New Zealand where ordinary tap water is a harmless solution to a basic human need, although there are anti-fluoride and anti-chlorine factions.

That view was irrelevant in the context of water companies' successful activities and obvious consumer demand (created or essential) for what the companies sell.

Just Water is well run and came to market with a good record, growth prospects and a product that was in demand. The fact that water was sexy helped the listing become spectacular.

Comments from our readers

No comments yet