Greenstone IPO, page-28

here is an assessment from a UBS Fundee. I think he likes this one!

Quality earnings becoming extremely rare in busy IPO market
RICHARD HEMMING THE AUSTRALIAN MAY 30, 2015 12:00AM

After a lull for much of the year so far, brokers are out in force, spruiking IPOs like never before.
But are fund managers listening? After speaking with a number of them, the evidence is that they’re paying less and less attention, and one way of determining that the quality is declining in the market is for the majority of the free float on offer being held by mums and dads. (The free float is the stock not held by founders that gets listed on the public market.)
“We use brokers for ideas generation and then we do the work to ensure that it meets our eight commandments,” says UBS Small Company Funds director Stephen Wood.
Woods’s team has an abundance of investment banking experience and he claims that only three companies of the 40 that have come across his desk have met these commandments — media intelligence company iSentia, auto-parts distributor Burson and New Zealand vocational education provider Intueri.
There is no doubt there was quality in the IPO offerings last year, which also included organic baby formula producer Bellamy’s and patent lawyers IPH, but a quick viewing of the latest offerings requires a sceptical stance since many are seeking to raise money at PE multiples in the high teens, which compares unfavourably with the 10-year average of close to 12 times, and that’s at the so-called quality end.
It’s definitely the stuff of bull markets. Take, for example, Air-Xpanders, which is trying to raise more than $39 million to commercialise its breast reconstruction technology for a planned ASX listing on June 22. From what we can see, it’s on track to be an idea with a listing — it doesn’t even have regulatory approval, let alone sales. There are literally hundreds of these ‘‘idea companies’’ on the ASX from the last boom period.
In contrast, one stock that has caught my eye because there is a ‘‘disruptive element’’ in its composition is Greenstone.
The company hopes to raise close to $1 billion, more than half of which will go to its current owner, Hollard Insurance.
Greenstone was not an insurance broker but an “agent”, Hollard’s chief executive Richard Enthoven assured us.
The group develops and sells specialty insurance products, which are then underwritten by three big insurance groups, including Hollard itself. It makes the difference between the premiums it receives and its costs, which include the underwriting. If all is a success, it should trade on a PE of about 17 times, and what’s not to like? Let’s leave aside for a minute the risk that accounting-based earnings done on an accrual basis can overstate an insurance broker’s cash flow — think iSelect!
The shares of that one-time IPO hopeful are still well below its mid-2013 issue price.
On a positive front, Greenstone’s products include pet insurance and funeral insurance, which are aimed directly at baby boomers. This generation is retiring and is increasingly attached to its pets, plus the children don’t want the embarrassment of not being able to give them a good send-off. You can’t get much more emotional pull than that.
Richard Hemming ([email protected]) is an independent analyst who edits www.undertheradarreport.com.au, which provides investment opportunities in small caps.