The Australian initial public offering (IPO) market went into
a frenzy late last year and Milford Asset Management senior
analyst William Curtayne predicts the frenzy will resume in
the next few weeks.
In December, there were 21 IPOs, the highest number of new
offerings in a single month since December 2010, as unlisted
companies took advantage of the momentum in equity markets to
attract new investors.
Investment banks had indicated a possible 30 new listings in
the early part of this year from private equity sellers
alone, he said.
''Assuming stable equity markets, we are likely to see the
frenzy resume later this month,'' Mr Curtayne said.
The average return on December listings was 5.1% but the
large variance in individual returns highlighted the need to
be selective when investing in new issues, Mr Curtayne said.
Investing in IPOs was more risky than buying listed shares,
as less information was available on new listings.
Investors should concentrate on companies raising new
If a business was not raising new equity, the owners were
selling shares, which might be because the company had a poor
outlook, he said.
''Every owner will say they are selling to diversify, but the
owner of a great business with a fantastic outlook will not
want to diversify.''
Being wary of private equity floats was another rule for
investors, he said.
Private equity companies could be good at buying a good
business, cutting costs, scaping the investments for future
growth, stuffing it full of debt and selling at a ''fat
profit'' before the lack of new investment resulted in a
slump in earnings.
There had been some disastrous private equity floats in
Australia in recent times.
Investors should not buy just because everyone else was
buying, Mr Curtayne said.
Every IPO was ''many times oversubscribed'', according to
It could be tempting to invest in the IPO of a business that
had a poor long-term outlook on the expectation of making
mouth-watering short-term returns because there was ''huge
''If this apparent demand fails to appear after the listing,
the stock will fall and you will be left wondering where all
the buyers went.''
However, if the company was fundamentally sound, investors
could buy more shares below the issue price, he said.
Vehicle leasing and fleet management company SG Fleet was
expected to be the next IPO with an expected listing, early