Overpriced and short on appeal: IPOs struggle to impress
Fund managers say the poor performance of Nine Entertainment since its initial public offering is reflective of a wave of overly expensive floats and waning demand for new stock.
The Australian sharemarket is closing in on a year-to-date record of $10 billion worth of IPOs, but the run has culminated with fizzers such as Nine, transport company McAleese and industrial property landlord Industria REIT.
Nine, the commercial free-to-air television, digital and events business is trading about 9 per cent below its listing price. There are a range of reasons for this, including some of Nine's hedge fund owners selling out of the stock and concerns about the internet luring viewers away from television.
Fund managers say the disappointing debut is part of a broader theme of overpriced floats.
"There's no doubt some of the groups have been ambitious in the pricing they wanted to achieve," Ausbil Dexia chief executive Paul Xiradis said.
"With all new issues there's got to be an element of discounting to listed counterparts because the listed counterpart has a trading history and is generally well known among the investment community.
"Clearly the market is saying there has not been enough of a discount with many of these floats."
Clime Asset Management chief investment officer John Abernethy was particularly scathing of Nine, saying it was "excessively priced".
"Given headwinds with the convergence of media and the internet, as well as concerns over economic growth that could hurt the advertising market, I think Nine was overpriced," he said.
Mr Abernethy said a declining manufacturing sector, evidenced by Holden's decision to pull out of Australia, as well as a slowing mining industry would lead to weaker economic growth, which would likely crimp the advertising market.
Nine is understood to be comfortable with the amount of "quality institutional support" the float received.
Perpetual head of equities Matt Williams said the poor performance in recent floats showed investors were getting fatigued by the wave of listings.
"Of the 15 [recent] floats, only five are trading above issue price, and two of those only barely," he said. "It's a broad statement but clearly pricing expectations will have to be tempered given these statistics."
InvestSMART FORUM: Come and meet the team
We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.
Want access to our latest research and new buy ideas?
Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.Sign up for free