Five IPOs to watch

 

After a record-breaking year with $18.6 billion in listings, the 2015 initial public offerings (IPOs) market could be tamer. Potential floats for 2015 include accounting software provider MYOB, share registry Link Market Services, dairy processor Murray Goulburn Co-operative, software developer Wise Tech Global (in late 2015), fleet-management provider Fleet Partners, and South-East Asia-focused Property Guru.

Smaller touted IPOs include software developer Readify, homeware provider Adair Retail Group, QMS’s digital outdoor advertising spin-off, chemotherapy provider Icon Cancer Care, and foreign-currency broker FXPrimus.

But as investors look for the next IPOs, the smart money might focus on recent listings rather than upcoming ones. High-quality small and mid-cap floats can be overlooked in boom IPO years, as investors scramble for a piece of the largest offers.

Below are five interesting IPOs from 2014. Some have already rallied and have further to run in the next few years, albeit at a slower pace. Others are wallowing below their issue price and make the grade on valuation grounds.

Always remember that IPOs have extra risks because far less is known about them compared to listed companies.

1. Genworth Mortgage Insurance Australia

After being delayed for almost three years, Genworth’s IPO had impeccable timing. It listed in May 2014 – in the middle of a residential property boom – after raising $583 million. The $2.65 issued shares peaked at $3.90 after strong earnings guidance, before retreating to $3.38.

Genworth would be a terrible stock to own during a property downturn, characterised by sharply higher mortgage arrears and loan defaults. But it is hard to see residential property tanking, with another interest rate cut a possibility in 2015, lower petrol prices helping homeowners, and unemployment remaining elevated although manageable. FN Arena’s consensus target price for Genworth is $3.87.

Genworth Mortgage Insurance Australia (GNW)

Source: ASX

2. iSentia Group

The media-monitoring group was among the more impressive floats of 2014. After raising $284 million in an oversubscribed offer and listing in June, iSentia rallied from a $2.04 offer price to $2.65. Fund managers liked its business model and Asia growth prospects.

iSentia provides media monitoring, social-media monitoring and analysis, media management and analysis, contract management services around communication strategies, and media-release distribution. It is superbly positioned as companies use advanced software to understand what is said about them online and tailor messages in real-time.

Like all good software companies, iSentia’s business model is highly scaleable and can be expanded to new market segments without huge capital investment. As the clear market leader in its industry, iSentia also enjoys high barriers to entry, a valuable competitive advantage, and pricing power. It’s a stock to watch over the next few years. FN Arena’s consensus target price for iSentia is $3.07

iSentia Group (ISD)

Source: ASX

3. Monash IVF Group

The in-vitro fertilisation (IVF) group was one of last year’s big IPO disappointments. After raising $315.9 million and listing in June, Monash’s $1.85 issued shares have slumped to $1.39. Signs of slowing IVF demand and greater IVF competition in Australia have weighed on the stock.

The market had high hopes for Monash after its close rival, Virtus Health, soared on listing in 2013. Virtus has a better industry position, but Monash has plenty of attractions, notably a fantastic brand, deep intellectual property and strong potential to expand in Malaysia, which has much lower rates of IVF penetration than Australia. IVF is a solid, reliable industry with high barriers to entry and good long-term prospects

FN Arena’s consensus target price for Monash IVF is $2.07. Monash has the potential to grow by acquisition in New South Wales, a market where it is under-represented. Like many IPOs, it was overpriced at listing and looks a lot more interesting after listing.

Monash IVF Group (MVF)

Source: ASX

4. 3P Learning

The education software provider raised $282 million in an IPO, attracted several prominent small-cap fund managers, and listed in July 2014. It briefly traded above the $2.50 issue price before slumping to as low as $1.94 in one of the year’s more disappointing floats.

But every stock has its price and 3P has a fantastic global business in online learning through its popular programs: Mathletics, Reading Eggs, Spellodrome and the newer IntoScience. About 4.7 million students and 17,000 schools use its software, according to the company.

3P slightly beat revenue and underlying earnings projections in the prospectus, confirmed it was on track to meet 2014-15 guidance, and has plenty of operational momentum with product releases. The market may have been too harsh on 3P given its potential to expand in the United States, its pricing power and a unique product offering online education in Australia.

Online education is a lucrative global business, and 3P clearly has good products and is well run. The only broker to rate the company on FN Arena’s database – Macquarie – has a $3 target on the company.

3P Learning (3PL)

Source: ASX

5. Orion Health Group

With several billion-dollar healthcare floats in 2014, it was easy to overlook the $112-million IPO of the health software provider. Listed in November, Orion rallied from a $5.11 offer price to as high as $6.05 before easing to $5.50, making it one the best health-related IPOs in 2014.

Orion has three key products: Intelligent Integration, an enabler of healthcare information exchange; Smart Hospitals, which manages the clinical and administrative information flows within hospitals; and Healthier Populations, which provides care, co-ordination and analytic tools to manage healthcare needs beyond hospitals.

True believers in technology’s potential to revolutionise healthcare will find much to like in Orion. It says the key to the health data revolution is software that captures and analyses healthcare information for populations, to help clinicians create individual healthcare plans.

Orion looks like another New Zealand company that should benefit from a secondary listing on the ASX. Established 21 years ago, it has a good long-term record and 450 healthcare customers across 25 countries. With governments worldwide under pressure on healthcare spending, Orion’s software should enjoy stronger demand in the next five years.

Orion Health Group (OHE)

Source: ASX

• Tony Featherstone is a former managing editor of BRW and Shares magazines.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.