IPO : Tell Me A Story

<Image Credit : Investopedia.com>

   

 This year should be a good year for SGX as we           have seen many  IPOs in the first half of 2017 and       as for retail investors, many  should be excited          busy pressing button at ATM to apply for the              IPOs, expecting to have some quick bucks if successfully being allocated with some share.

The latest one will be the hottest in the market of “NetLink Trust “ which expected to raise up to $2.6 Bil from the IPO ( detail here ).

In such a bullish market, one should expect to at least “ get something “ from the IPOs if they successfully applied for it.  Below quote from SGX “Market Update “ would give you a clue on the performance of 10 most recent IPOs on SGX Catalist and how hot the market punters are chasing for such double-digit gain from IPOs.

10 Most Recent Catalist IPOs Averaged 56% Returns from Debut
The most recent 10 stocks to debut via IPO on Catalist have averaged 56.2% returns from their respective initial offer prices. Of the 10, there were nine gainers and one decliner, and the median return of these 10 stocks at 43.6%. SGX has two listing platforms: the Mainboard – for established businesses; and Catalist for potentially fast-growing companies. There are no quantitative entry criteria required by SGX for Catalist stocks, and businesses seeking a primary listing on Catalist must be brought to list by approved Sponsors... Today, UnUsUaL, a subsidiary of Catalist-listed mm2 Asia, debuted on Catalist, opening at 45.5 cents per share before ending the session 43.5 cents per share, a 118% premium to the initial offer price of 20 cents per share.
Name	SGX Code	Market Cap in S$M	IPO Date	IPO Price (S$)	Last Price (S$)	Total Return from IPO Price %
UnUsUal	1D1	280	4/10/2017	0.200	0.435	117.5
Kimly	1D0	554	3/20/2017	0.250	0.480	92.0
Samurai 2k Aerosol	1C3	23	1/16/2017	0.200	0.230	15.0
HC Surgical Specialists	1B1	84	11/3/2016	0.270	0.570	117.8
AGV Group	1A4	21	8/26/2016	0.220	0.170	-22.7
Wong Fong Industries	1A1	59	7/28/2016	0.230	0.250	8.7
Katrina Group	1A0	52	7/26/2016	0.210	0.230	9.5
Advancer Global	43Q	62	7/11/2016	0.220	0.360	65.0
United Global	43P	85	7/8/2016	0.250	0.300	22.2
Acromec	43F	65	4/18/2016	0.220	0.520	137.3
Average						56.2

Source: SGX Stockfacts, Bloomberg (Data as of 10 April 2017). Note UnUsUal to be profiled in SGX StockFacts this week.

Investors will normally try to get some info about the company which they are going to apply for and one may get such info from various sources. I think one of the most popular sources will be the blog post from the famous blogger Mr IPO who has good and detail analysis on each IPO prior listing and of course his famous “ Chilli Rating “.

You may find the link to his blog and his latest blog post (here )

Since the company launching IPO is a newly listed company, I think it will be prudent for investors to get more information and read as many analyst reports, comments or opinion as possible from different sources of the market before putting in their hard-earned money into these companies.

You may also find some good analysis from a few financial bloggers and sources as below :

1)      smallcapasia.com (here )

2)      investmentmoats.com ( here )

3)      sgbudgetbabe.blogspot.sg ( here )

Tell Me A Story :

Every IPO’s a listing may have their own story to attract investors but as what has been highlighted by Prof Aswath Damodaran in his book “ Narrative and Numbers “ argues that “ the power of story drives corporate value, adding substance to numbers and persuading even cautious investors to take risks. 

In business, there are the storytellers who spin compelling narratives and the number-crunchers who construct meaningful models and accounts. Both are essential to success, but only by combining the two, can a business deliver and sustain value. “

In every IPO’s prospectus , you may find the best description and business prospect of the underlying business and also the sanguine future growth story of the company in order to attain the highest IPO price.  Ultimately, it is the duty of investors to do due diligence and number crunching to justify the figures given in the prospectus, especially the future growth and Risk factors.

In might not be easy for retail investors to read the IPO’s prospectus in finding any clues from the prospectus as (some of ) the figures are given might have been “ beautify “  prior launching of the prospectus, always reading and taking the figures given with a pinch of salt “. Of course, not all will have such issues but it is important for us as future shareholders to do due diligence and thorough analysis of each IPO prior to putting our hard-earned money in it.

Further reading from Investopedia :

Interpreting A Company's IPO Prospectus Report ( here )

Few examples of the interpretation of Risk Factors :

//Quote //

The Prospectus Says: "...risks for the company include, but are not limited to, an evolving and unpredictable business model and the management of growth... There can be no assurance that the company will be successful in addressing such risks and the failure to do so could have a material adverse effect on the company's business, prospects, financial condition and results of operations."

Interpretation - This company faces substantial risks. If it fails to address these potential pitfalls - and this is very possible - there's a good chance that the company will go broke.

The Prospectus Says: "The company believes that it will incur substantial operating losses for the foreseeable future, and that the rate at which such losses will be incurred will increase significantly from current levels. Although the company has experienced significant revenue growth in recent periods, such growth rates are not sustainable and will decrease in the future."

Interpretation: According to the prospectus, this company is losing money and will continue to lose money in the foreseeable future. Company growth rates will slow.

The Prospectus Says: "This market is new, rapidly evolving and intensely competitive, which competition the company expects to intensify in the future. Barriers to entry are minimal, and current and new competitors can launch new sites at a relatively low cost."

Interpretation: The prospectus is telling us that the company operates in a highly competitive industry, and one that is cheap and relatively easy for new players to enter.

//Unquote//

Other than looking and reading the information from Prospectus, one may also try to find out the reasons why a company go public through IPO? Some may be due to adhering to certain “regulation “ like the case of NetLink Trust, others may be for the reason of CAPEX and business expansion or finding new management & succession plan and the most dangerous or risky one will be divestment ( or so-called cash out ) from owner or major shareholders due to “ declining business environment “ with limiting growth or worst still facing some kind of “ digital disruption “ in their business.

Good reading source :

3 “Hidden” Reasons Why a Company Might Go Public (here ) from The Motley Fool SG

  

Investors need to be careful of IPO which is due to “cash-out” from owners in view of the tough business environment ahead and make sure to do your due diligence prior accepting their side of “ Story “.

What do you think? Are you accepting the story of each IPO when they launch?

….. and Tell Me A Story !!

Cheers!

Quote Of The Day:

“For those listening to stories, the danger is a different one. Since stories tend to appeal to the emotions rather than to reason, they also play on our irrationalities , leading us to do things that do not make sense but feel good. “ by Prof. Aswath Damodaran in his book “ Narrative and Numbers”

PS: For info, I have never applied for any IPO since start investing 19 years ago. I might be one of the “ extreme “ and rare case among retail investors.