Interesting Headline in AFR on Saturday about IPO Craze at the moment. Funds chose their best preferences. Isn't it interesting that TFG is chosen beside BWX. Cheers
Float stocks the fund managers like
by Tony Featherstone
Leading small-cap fund managers have participated in only a handful of IPOs in 2015 and received far less stock than sought. Several told Smart Investor Weekend that IPO prices had risen too far.
"High-quality, undervalued IPOs have been few and far between this year," NAOS Asset Management chief investment officer Sebastian Evans says. "On average, about one in 40 IPOs we have looked at offered strong value. There's been some extraordinary valuations in IPOs and hype in the backdoor listings market."
Small-cap managers were asked to nominate their preferred IPOs or backdoor listings in the past 12 months, or upcoming floats. Here are their selections.
TONY WATERS
PORTFOLIO MANAGER, AUSBIL MICROCAP FUND
The fund invested in PWR Holdings, a provider of engine coolants used in NASCAR, Formula 1, V8 Supercars and other high-performance cars.
PWR raised $81.8 million at $1.50 a share and listed on the ASX on November 18. It opened at $2.52. "PWR is a unique business," Waters says. "It dominates its category in high-performance racing and has several emerging opportunities to expand into other markets and grow overseas."
The fund also invested in Costa Group Holdings, which raised $550 million at $2.25 a share and listed in July. After a slow start, Costa has rallied to $2.62, amid rising interest in agribusiness stocks.
Waters says Costa has latent value in its technology. "On first impressions, Costa looks like it has low bargaining power because it relies predominantly on supermarket chains. But its intellectual property in growing strains of berries is a significant competitive advantage that drives strong annual revenue growth in its key categories and positions Costa to expand its international sales."
Waters also rates IDP Education, which listed this week, and the property company McGrath Holding Company, expected to list in early December.
KARL SIEGLING
MANAGING DIRECTOR, CADENCE CAPITAL
Siegling favours Pepper Group and Eclipx Group, a fleet management and leasing company. Eclipx raised $253 million at $2.30 a share, listed in April, and has rallied to $3.41.
Eclipx's executive team is well regarded. Chief executive Doc Klotz was head of global operations at financial services provider FlexiGroup and deputy chief executive Garry McLennan was FlexiGroup's chief financial officer. "You are essentially backing a proven management team that have invested their own money in the opportunity, and private equity that is backing Eclipx," Siegling says. "The business is performing strongly and is well placed to capitalise on demand for motor-vehicle financing."
He says one of Cadence's favoured floats in the past 12 months, the intellectual property firm IPH, has outstanding prospects. After raising $79 million at $2.10 in late November 2014, IPH has soared to $7.90, making it one of the best-performing floats in years.
"IPOs as strong as IPH don't come along very often," he says. "We took a position in the float and added to it after listing. Unlike most law firms, IPH gets paid within seven day of doing the work, or in advance, and is in a stable, growing market."
IPH's success helped drive strong interest in Xenith IP Group, another intellectual property company that listed on ASX last week. Its $2.72 issued shares have jumped to $3.29. Cadence took a small allocation in the oversubscribed Xenith float.
MICHAEL GLENNON
CHIEF INVESTMENT OFFICER, GLENNON CAPITAL
Glennon Capital, a recent IPO, favours BWX. The Melbourne-based company owns, makes and distributes skin and haircare brands, and manufactures others for third parties. After raising $39.3 million at $1.50 a share and listing in November, BWX has raced to $2.80.
Glennon Capital, a listed investment company, invested in the BWX float and was willing to buy stock up to $1.80. "BWX is due for a breather at the current price, but has solid long-term prospects," Michael Glennon says. "Its key brands have excellent market recognition, good profit margins and are efficient to make. We see BWX entering other markets here and overseas." Glennon says the upcoming micro-cap IPO, Total Face Group, has interesting prospects. The surgical medical aesthetics company is raising $6 million to develop anti-ageing and body sculpting treatments. Its strategy involves acquiring and consolidating smaller clinics that provide Botox and other services. "This is a long-term growth industry that is fragmented, with lots of small operators," he says.
