Companies listing on the new NXT market have to provide forecasts

Monday 15th June 2015

Small to medium sized companies that list on NZX’s new NXT market, which launches this Thursday with the compliance listing of G3 Group, will have to make annual forecasts not required of their main board counterparts.

The new market for companies with market capitalisations ranging from $10 million to $100 million is described as having a less onerous disclosure regime because it requires regular reporting of key operating metrics rather than the continuous disclosure regime that operates for companies listed on the NZX main board.

NZX’s Aaron Jenkins, who drove the design and regulatory approval of the NXT market, said there is no less information required, but that it has been made easier for those listing to know what they have to report and when, and removes discretion about what they should disclose.

“The traditional disclosure regime is seen by these companies as too hard to get their heads around and so they don’t bother listing. We’ve prescribed the disclosure and removed the ambiguity while investors will have the same protection,” he said.

Jenkins said the new market will be reviewed with the market regulator after two years and consideration will then be given to whether the forecasts should be included in the main board rules. Investors often punish listed companies if they fail to meet forecast earnings.

The information required from NXT companies includes interim and full year financial reports, quarterly business updates on key performance metrics that will differ depending on the company, and forecasts.

An example of key operating metrics for a software as a service business, a number of which are likely to list on this market, include the number of paying users, average revenue per user, customer churn rate over a given timeframe, customer acquisition cost (CAC), months to recover CAC, and lifetime value of the customer.

NXT companies which raise capital when listing need a minimum target of $5 million and to attract at least 50 shareholders, rather than the 500 required on the main board.

Listing fees for both boards are around the same at $30,000 although the NXT includes the cost of the market maker, First NZ Capital, which is being paid by NZX to ensure a daily price in the market to provide liquidity. The market will open an hour later than the main board at 11 am and close an hour earlier at 4pm. There are also four approved NXT advisers companies can appoint to guide them through the process.

The listing fee includes the cost of independent research house Edison Research, which is being paid by NZX to provide four reports a year on each NXT listed company as half of New Zealand companies currently don’t have any research coverage.

Edison Research New Zealand boss Simon Edwards said it currently covers 20 companies in New Zealand and 700 globally. Its coverage of NXT-listed companies will include an initial report which will go out as a company launches an initial public offering or on the same day as a compliance listing.

That report will include an overview of the sector it is in, commentary on the board (which is required to have two independent directors) and management, the balance sheet, and profit and loss account. It will also comment on the company’s valuations but stop short of making recommendations as most other research coverage does, Edwards said.

Auckland based G3 Group, a mail operations and document management company, will be the first to list on NXT, this Thursday, with an implied valuation of $40 million.

Jenkins wouldn’t be drawn on the pipeline of companies to list on the market, saying there’s likely to be a steady flow rather than a flood at any one time. NZX has spoken to about 100 companies it viewed as likely candidates and some of those currently on the decade-old secondary board, the NZ Alternative Index, have indicated interest in shifting across.

Jenkins wouldn’t say when the NZAX will be closed, although it would be “in the medium term” and said some companies would migrate to the main board while some smaller ones that were facing a lack of investor interest were unlikely to remain listed companies.

BusinessDesk.co.nz

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