Floats Starting To Lose Their Allure For Investors

Sydney Morning Herald

Monday November 8, 1993

JOHN SEVIOR

There are signs that the market for new floats is suffering from a mild bout of indigestion.

It is not such a bad thing given the weight of listings over the past 12 months but it does not bode well for several issues already in train and planning to join the lists in the next few weeks. They include Sunbeam Victa, Elders, Australian Resources, Hamilton Island and a school of tiddlers.

The lack of interest in new issues has been highlighted in recent weeks by the poor aftermarket performances from what appear to be some pretty solid companies.

Austoft ($1), a Queensland-based sugar can equipment maker, and National Textiles ($2) are both trading at their issue prices and have been below.

Both floated on below-market price earnings ratios and above-market dividend yields.

Admittedly they aren't the sexiest offerings around but six months ago both would have arguably achieved listing premiums of say 20-30 per cent.

Now the market for floats has been saturated as brokers and promoters have sought to cash in on what in some cases has been greedy and often blind demand for the next hot thing. At the speculative end of the market there are certainly signs of fatigue.

Media technology company Australis Media Ltd has come back to the pack after a hyped-up listing (closing at 51c on Friday against the 50c issue price) and on Thursday gold junior Riverina Gold Mines NL dropped 6c or 35 per cent on its issue price on day one.

There have been some healthy listings - Arthur Yates & Co is trading around 28 per cent above its $1 issue price - and there have been a few bolters in the mining market, but the overall tone of the IPO (Initial Public Offering)market is on the wane.

As one veteran broker said: "People have made enough money in the past year and they can afford to let a few issues go."

Enthusiasm in new issues tends to move in waves and at the moment we are probably close to the peak or even a little bit past it. This is good for the market. It has digested an enormous amount of new issues in the past year and the fact that brokers and institutions are casting a keener eye over what they support and what they pass up is a healthy sign.

There has been a tendency lately for brokers, hungry for commissions, to tap the market and move on to the next raising. In the process companies are being left to languish in the secondary market.

These companies will eventually find support, but the lack of follow-up by brokers after listing makes investors nervous about jumping into the next issue. And so the cycle goes.

With the availability of money starting to dry up last floats can be unhappy experiences.

Has Sir Ron Brierley lost his punch?

Judging by his latest attempts to cause trouble at Power Brewing and Samic, probably not. But given the limited firepower of his new plaything Guiness Peat Group Plc his best days as a force at the upper end of the market could be over.

That said, GPG has made some good turns in under-researched stocks. It started buying at around 27c and if it accepts the company's reconstruction it will book a profit of at least $400,000. The other takeover plays, Samic and ASC, have been typically messy but GPG is up on its entry costs.

In some ways Sir Ron has literally attempted to emulate the best years of IEL/BIL. He has revisited old favourites like Henry B. Smith, and the trustee companies Perpetual Trustees Australia and Tasmanian Trustees. GPG's biggest investment, the insurer and fund manager Tyndall Australia (40 per cent of GPG's assets) also has a substantial shareholding in Perpetual Trustees.

The other main investments are 12.5 per cent of another old favourite Allgas Energy, 89 per cent of Mid East Minerals, 8.8 per cent of Australis and 100 per cent of UK fund manager and stockbroker Brown Shipley. In a recent report Potter Warburg analyst Paul McCarthy calls the stock a buy around Friday's 62c on the grounds it is at a discount to its "assessed" or"inherent" asset backing of 66c-68c.

The thrill of the fight isn't quite compelling for a publicity conscious operator like Sir Ron so the question for investors is whether he has the energy to do it all again.

In a television interview earlier this year he said: "It's very firmly in my mind that we're basically a short to medium-term exercise."

Sir Ron's patience and tenacity are well known, but his lack of wherewithal must be frustrating.

GPG listed in Australia in August through a placement to local institutions at 52c and ran up to 75c before settling around 60c, giving a respectable gain of 17.6 per cent in three months. The next leg in the share price will depend on the next move.