Some conditions will favour Nine
For the market's sake, Nine Entertainment's sharemarket debut under new management better rate well with investors.
But I have my doubts. While it's the biggest float of the year, it's no Twitter or even our home-grown Freelancer.
It wasn't so long ago that it was bragging about having no debt (a year ago), yet it will owe about $600 million after the float. Shouldn't that be the other way round?
At least after raising $670 million there should be some spare cash for Channel 9 to afford a clock so it runs on time.
Anyway, the bright lights didn't dazzle the big end of town because Nine values itself at a price-earnings ratio of about 8.5, which is higher, and so dearer, than rival Seven West's 7.5. Although Seven rates better, and even more desperately needs a clock, it's weighed down by twice as much debt. It also has print, not that a newspaper monopoly in Perth should be all that great a handicap.
Honestly, TV is just as challenged by the digital era as newspapers. The days of an oligopoly of three commercial channels blessed by a regulator allocating, or rather restricting, spectrum must surely be numbered.
Talk about quaint. Broadband is usurping terrestrial broadcasting with programs that can be downloaded any time from anywhere. The local news aside, it won't be Nine against Seven and Ten, but Apple, YouTube and goodness knows who.
Still, with the lower dollar, the fact it is protected from pay TV by the anti-siphoning rules on sport, was given extra digital channels for nothing, and is the beneficiary of falling licence fees, Nine does have its appeal.
It could well pull in more foreign investors, which can only help market sentiment towards this month's next biggest floats, of Veda, the credit rating people, and Dick Smith, the electronics chain that Woolies, er, pulled the plug on a year ago. In all there are about 25 companies planning to float before Christmas, which adds up to $7 billion.
It just so happens that from December 12 about $6.5 billion will pour into the pockets of DIY super funds and investors from bank dividends. The question for them is whether to roll the money back into the banks which have served them so well but are getting expensive, or venture into one of the floats. None will be offering the same turbocharged dividends as the banks, but the right one is bound to produce a better capital gain.
So what should you look for? First and foremost, where your money will be going.
At Nine, for example, only $50 million will go into its bank account. The rest is for the private equity firms selling down and paying off debt. For new businesses, it's even more essential the money is ploughed into the enterprise rather than a promoter's pockets.
Another giveaway, unless it's starting from scratch, is the cashflow statement. Here, Nine looks all right — it generates about $180 million a year in cash.
Google the directors and managers. Oh, that reminds me, in the unlikely event you were wondering what happened to Peter Costello, he's a director at Nine.
It's also a good sign if the existing owners will be hanging around, but check whether their shares are in escrow, which means they can't be sold for a specified time.
And if you miss out on getting an allocation, wait. At some point the market will correct, for sure.
Read David Potts in Weekend Money, with
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Twitter @money potts