How to capture this potential immediate surge in value
Wednesday, 20 September 2017
By Bernd Struben
- When a bargain is not a bargain
- Now that’s a bargain!
The focus in Port Phillip Insider this week has been squarely on initial public offerings (IPOs).
You’ll know the reason for that if you’ve been following along.
It all has to do with the brand new investment service launched by Port Phillip Publishing’s head of research, Greg Canavan.
We first released Greg Canavan’s Exclusive IPO Investor in June this year. But I still say ‘brand new’ because in June it was only available to our Alliance members.
The three day membership window that opened on Monday this week — and closes at midnight tonight — is the first time the service is available to any paid subscribers.
What makes this service unique is that Greg works to secure his subscribers priority shares in upcoming IPOs. Priority shares in top notch IPOs are almost always the reserve of institutional investors and elite ‘insiders’.
To clear up a common misconception, by the time a company lists on an exchange like the ASX, all of its new shares have already been issued. When the opening bell rings on a stock’s debut it simply marks the first time these shares are traded publicly. The first time, in other words, that most investors like you and me have the opportunity to buy into the stock.
And that means missing out on some potentially rapid and hefty gains.
In an analysis of IPOs, the Telegraph notes, ‘The majority of flotations exclude private savers until the first day the stock trades on the stock market. This can mean missing out on any immediate surges in value.’
That surge in value is just one of the things Greg works overtime to secure for his subscribers. And he’s confident we’ll see just that with the allotment of priority shares he’s secured in engage:BDR’s $6 million IPO on the ASX.
I gave you some background on engage:BDR earlier this week.
In a nutshell, it’s a US based tech company, and a leader in online advertising technology. And the company’s two top managers were both instrumental in social media giant Myspace’s success…years before Myspace tanked.
I won’t go into any great detail on why engage:BDR looks so promising today. (You can find all those details here.) But this is what Greg has to say about the opportunity:
‘I’ve been doing due diligence on this company for weeks. It’s going places. This is an insane chance for you to buy a lean, mean American tech company at an absolute bargain-basement price.’
More, after the markets…
Overnight, the Dow Jones Industrial Average gained 39.45 points, or 0.18%.
The S&P 500 added 2.78 points, or 0.11%.
In Europe, the Euro Stoxx 50 index finished up 4.44 points, or 0.13%. Meanwhile, the FTSE 100 gained 0.30%, and Germany’s DAX index rose 0.02%.
In Asian markets, Japan’s Nikkei 225 index is flat (up 0.04 points, or 0.00%). China’s CSI 300 is up 0.37%.
In Australia, the S&P/ASX 200 is down 9.38 points, or 0.16%.
On the commodities markets, West Texas Intermediate crude oil is US$49.82 per barrel. Brent crude is US$55.33 per barrel.
Gold is trading for US$1,310.34 (AU$1,637.11) per troy ounce. Silver is US$17.31 (AU$21.63) per troy ounce.
One bitcoin is worth US$3,902.12.
The Aussie dollar is worth 80.04 US cents.
When a bargain is not a bargain
Who doesn’t love a bargain?
Whether it’s a new pair of shoes or a great travel deal, I imagine you prefer to pay as little as possible for the best outcome. Meaning quality shoes, or a first-class vacation, on the cheap.
But as a veteran bargain hunter, I can tell you it doesn’t always work out that way. Sure, you might score a new pair of off-brand runners for half price. But you might well be replacing them in quick order as well.
When it comes to investing in the stock market, it’s really no different. You want to find stocks that appear discounted. But you don’t want to find yourself selling your shares at an even steeper discount down the road.
Getting this right is even more important when it comes to IPOs. That’s because a lot of IPOs flounder right from the start.
To pick a name you’ll be familiar with; Myer is a great example. It’s also a case where retail investors like you and me had a chance to buy shares prior to the listing. That’s because, as retail investors, we generally only get offered the duds.
In other words, companies that will likely be trading below their float price before you ever consider taking some profit off the table.
In Myer’s case, investors never had that chance at all. The share price fell on opening day, and the stock never got back above its listing price.
Now Myer’s IPO back in November 2009 was actually its second market float.
US private equity firms TPG Capital and Blum Capital Partners LP bought it from the Coles Myer Group in 2006 for $1.4 billion. They spent about three years polishing it up, and then sold it back to the market in a highly publicised IPO for $2 billion.
Not a bad premium for the private equity firms. Unfortunately, one that came at the expense of many retail investors who jumped at the offer and bought in for $4.10 per share.
Here’s what SBS had to say on the first day of trading, on 2 November 2009:
‘…shares in Australia’s largest iconic department store tanked 8.5 per cent after it listed on the Australian Securities Exchange…
‘TPG and Blum… sold the stock for $4.10 per share to over 200,000 customers, 9500 employees and around 80 institutions.’
The article also quotes chief executive Bernie Brookes as saying, ‘We’re happy we’ve been able to list with a really good mix of both institutions and the general public.’
Now Bernie obviously had high hopes for the company. Hopes we now know never materialised. Below you can see how Myer’s stock as performed since the IPO.
Source: Google Finance
Click to enlarge
As at writing shares are trading for $0.68. That’s down 84% from the IPO price.
The important takeaway is that 200,000 customers — retail investors — were able to buy shares before Myer listed on the ASX. And for Greg, that’s an immediate warning sign.
When you’re talking about really exciting new floats, companies that look set to shoot the lights out, that almost never happens.
According to Greg:
‘First dibs go to company insiders…second dibs go to institutional investors…third dibs go to professional but non-institutional investors…fourth dibs (sometimes) to company employees…and then, finally, you, the retail investor, get a go at the scraps.’
That’s where Greg aims to level the playing field. He aims to put you right up there with the company insiders.
Not that he’s looking to get you into billion dollar floats. Greg is focused on what he calls ‘boutique opportunities’. These are much smaller companies with the potential for explosive growth. Ones that are exclusive to his network, where he can secure you an allotment of priority shares.
Companies like engage:BDR.
(If you didn’t already check out the particulars on engage:BDR above, you can do so here.)
Now that’s a bargain!
We covered what happens when bargains go wrong in the IPO market. Now let’s look at one that went right.
And, of course, many do go right. Very right.
That’s why the average return on IPOs in Australia last year was around 31%. And the average return for tech IPOs was even better, at 69.5%. That’s despite the duds dragging down the average.
MotorCycle Holdings Ltd [ASX:MTO], for example, listed in May 2016. All the priority shares were sold by 23 March. At $2 per share, the IPO raised $46.3 million.
Seven months later investors were sitting on a 115% gain.
Source: Google Finance
Click to enlarge
As you can see above, the stock is still looking strong today — up 105% from its $2 priority share price.
Google Finance, by the way, tells me it’s only up 51.3% since it began trading publicly.
That gives you an idea of what Greg is working to achieve for subscribers of Greg Canavan’s Exclusive IPO Investor. Doubling, or more, your potential returns from what his exhaustive research indicates are the best looking IPOs to hit the ASX each year.
And right now you still have the opportunity to secure your allotment of priority shares in engage:BDR…and every other IPO Greg recommends in his service. But only until midnight tonight.