Overpriced iSelect shouldn't dampen IPO enthusiasm

A company with uncertain earnings priced beyond perfection. The iSelect IPO was always going to be a big ask.

Not the most auspicious day for a debut. But things can only improve from here, as the spruikers would have you believe.

As the general market tanked, down almost 1.5% by midday, iSelect, the latest internet group to hit the boards, rapidly headed south from the second it began trading.

The $1.85 stock debuted at a nasty 14.5% discount, suggesting that forces greater than general market sentiment were at work.

Valued at $480 million on the capital raising, investors watched $72 million evaporate as the company came out of the gate.

iSelect, an insurance comparison website, was sold to punters on a rather heroic price earnings multiple; up around the 27 mark which is more than double the average for the general market. Without the benefit of a bull run, life was always going to be tough on day one.

The promoters compared the group to “peers” such as Seek, Carsales and Realestate.com.au, suggesting the pricing was appropriate.

The problem is, there are significant differences between the group and those to which it has been compared. iSelect is a comparison website, a little like Webjet, that collects a fee for directing traffic rather than holding inventory, injecting a degree of uncertainty into its earnings profile.

And the technology it employs is not difficult to replicate, delivering low barriers to entry.

That necessitates a serious advertising and marketing spend to maintain dominance.

While there’s no doubt it’s a tough call to raise cash in these kinds of conditions, it doesn’t necessary bode ill for all IPOs. Investors have keenly sought new companies with stable earnings and growth prospects.

IVF outfit Virtus which listed a fortnight ago, leapt out of the gates with an almost 10% gain on day one. The stock, priced at $5.68, has done more than just reward the stags. This morning it was trading at $6.33 after hitting $6.50.

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