Improving stock market conditions sees a flurry of initial public offering (IPO) activity, with one of the largest floats of the year, logistics software firm WiseTech Global, hitting the share market screens today after a $168 million raising, with a market capitalisation at outset of $970 million.
Investors are keen to tap into floats, with research from HLB Mann Judd showing that last year, when the broad S&P/All Ordinaries index fell by about1%, new IPOs on the Australian Securities Exchange (ASX) posted an average 10% gain.
The float pipeline has taken a while to get going this year: with the Australian stock market quickly following its world peers into correction territory in January, the best-laid plans of many of the companies in that pipeline were revisited. But with confidence creeping back into the market as the US market has recovered all that it lost, floats are back on the agenda.
Here is a look at some of the more substantial companies poised to list on the ASX.
WAM Leaders Limited
WAM Leaders Limited is the latest listed investment company (LICs) from the stable of Wilson Asset Management, the independently owned boutique investment manager established by Geoff Wilson in 1997. So far the firm has floated three LICs on the market, WAM Capital Limited, WAM Research Limited and WAM Active Limited.
Like its stablemates WAM Leaders will invest using Wilson Asset Management’s absolute-return-biased fundamental investment methodology: the specific mandate of the new vehicle is to invest in under-valued, large-cap companies in the S&P/ASX 200 Index so as to provide capital growth, deliver investors a stream of fully franked dividends, and preserve their capital. The LIC will try to find companies with strong earnings as well as a potential catalyst to future earnings that the market may not have already recognised: it will invest only in opportunities that provide strong risk-adjusted returns and will be able to default to cash if the portfolio managers don’t see anything worth buying on its criteria.
WAM Leaders Limited is looking to raise $165 million, but has the capacity to go as high as $330 million depending on demand. The offer price is $1.10 a share (with one attached option). At the minimum raising the net asset value (NAV) per share before listing would be $1.08.
Potential investors in WAM Leaders can take confidence from the stable’s performance history. According to Wilson Asset Management, over the last seven years (to 29 February 2016) WAM Capital (WAM) has earned total return (capital growth plus dividends) of 19.3% a year, WAM Research (WAX) has returned 19.8% a year and WAM Active (WAA) has returned 16.2% a year. Over the same period, the S&P/ASX 200 Accumulation Index has earned 10.4% a year.
The grossed-up dividend yields (on last dividend) have been: WAM Capital, 9%; WAM Research, 8.5%; and WAM Active, 3.3 %.
NB Monthly Income Trust
US-based fund manager Neuberger Berman is targeting income-oriented Australian investors with its NB Monthly Income Trust, which is raising up to $250 million to invest in a portfolio of prime US home loans and residential mortgage-backed securities (RMBS).
The fund is forecasting a net return of 6% a year, paid monthly, based on the subscription price of $1.10 (distribution payments will be fully hedged back to A$.) This return comes from a portfolio that at inception will be 62% prime US home loans; 36% liquid, short-dated RMBS; and 2% cash.
The home loans are screened for asset quality and credit quality, and mostly, where borrowers have positive equity. The loans are secured by single-family homes, valued between $US300,000 ($A394,000) and US$1 million ($A1.3 million), in areas of all 50 US states that Neuberger Berman considers to have good surrounding facilities and a strong community environment. The portfolio managers are looking for areas that appeal to the preferred borrowers, which are middle-income family households, self-employed entrepreneurs, professional people and recent college graduates.
Neuberger Berman says the target investor is any investor that wants regular income, from a source that gives their portfolios diversification away from Australian assets in general, and domestic equity risk and bank-hybrid risk in particular – which has become the de facto prime source of income for many Australian investors.
Neuberger Berman is investing $35 million in the trust, which will give the units a net tangible asset (NTA) value of $1.085 at listing. Neuberger Berman will re-invest its monthly distribution into the trust, through buying the listed units. The management fee is 1% a year, and there is no performance fee.
The NB Monthly Income Trust offer closes on April 14, with ASX listing scheduled for April 26.
Tegel Foods
New Zealand-based poultry producer Tegel Foods will be the first major private equity-backed float of 2016, and as such will test investor appetite for such exits, following the disastrous collapse of retailer Dick Smith, which came from a similar source. Private equity group Affinity Equity Partners is selling down its stake in Tegel Foods from 87% to 45%, through a joint listing on the New Zealand Exchange (NZX) and the ASX.
Tegel Foods processes roughly half of New Zealand’s poultry and supplies a range of premium processed meat products to customers in New Zealand, Australia, the Pacific Islands, the United Arab Emirates and Hong Kong.
Private equity group Affinity Equity Partners, which has owned Tegel Foods since 2011, is selling down its stake from 87% to 45%. A bookbuild to raise NZ$299 million–NZ$344 million ($269 million–$310 million) is scheduled for April 18-19, with a listing price expected to be at about NZ$1.55–NZ$2.50 ($1.40–$2.25) a share, with listing expected on May 3. The implied market capitalisation is NZ$552 million–NZ$636 million ($497 million–$573 million).
The indicative price range represents 12.7x –14.7x expected FY17 earnings. Joint lead advisers Deutsche Bank and Goldman Sachs lowered this range last month: initially they thought Tegel was worth 14.7x–18.5x estimated earnings.
The forecast FY17 dividend yield is 4.4%–5.1%. Adjusted for imputation credits, the yield in 6.2%–7.1%. Tegel’s New Zealand imputation credits are not available to Australian residents but the New Zealand government refunds the imputation amount to foreigners, minus 15% withholding tax. This refund is paid as a supplementary dividend.
Upcoming floats to watch
Reliance World Corporation
Plumbing fittings and water valves manufacturer Reliance World Corporation could be one of the largest floats of the year: the Melbourne-based group is targeting a raising of $800 million–$900 million, implying a market capitalisation of $1.2 billion–$1.4 billion. The business has grown from an Australian-only company to become the largest manufacturer in the world of safety valves for hot water tanks and of brass “push” to connect plumbing fittings. Reliance World’s biggest market is the US, which represents more than 60% of the company’s sales.
Global Traffic Network
Traffic reporting company Global Traffic Network (GTN) is planning a $220 million listing, which would give it a market capitalisation of about $400 million, with Macquarie as sole underwriter. GTN was looking at floating in 2015 but ditched it. GTN recently signed a long-term $207 million contract with Southern Cross Media, which underpins the float.
Genesis Care
Australia’s largest radiotherapy services provider, Genesis Care, which runs 25 cancer treatment centres in Australia, is reported to be set to announce an IPO, to fund expansion into Britain and Europe. Genesis Care just signed a $132 million strategic partnership with Swedish medical equipment maker Elekta AB. The partnership will run initially for eight years, includes order bookings valued at more than $132 million. Elekta’s oncology and neurosurgery products are used in more than 6,000 hospitals worldwide.
Booktopia
Sydney-based online bookseller Booktopia, which accounts for 83% of Australian online book sales, is looking to raise $75 million–$100 million in an IPO that would give it an initial market cap of about $150 million. Last year the company bought the online platform of bookseller Angus & Robinson and is a major player in the online book market in Australia, which is worth more than $232 million and is growing at 15.5% a year, according to IBIS Research. Ord Minnett and Morgans are joint lead advisers.
ThinkSmart
Consumer financier ThinkSmart is reported to be looking to float its British operation. The float would be underpinned by a recent five-year exclusive deal ThinkSmart signed with Britain’s biggest mobile retailer, Carphone Warehouse, to provide point-of-sale lease financing.
See details of upcoming floats here [1].
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