Unhealthy start for iSelect
While the broader sharemarket shed 1.5 per cent, iSelect shares slumped 29¢ at $1.56 on debut.
The Melbourne-based company had tried to list several times but weak market conditions forced it to continue to raise funds privately before it tested the water with a sharemarket listing. It recently raised $215 million at $1.85 a share.
The bulk of iSelect's revenues come from health insurance sales, for which it receives upfront and trail fees from insurers. It also compares and sells other products, such as life and car insurance, electricity and home loans.
But the ease with which competitors can emerge has kept potential buyers on the back foot, especially with some original backers exiting the stock as part of the initial public offering.
Concerns have also been raised about the company booking as profit money that will be collected later.
Among top shareholders, founder Damien Waller has a 12 per cent stake. Based on the $1.85 issue price, Mr Waller is down about $12 million on his holding, although he would have invested at significantly lower prices.
Others include US private equity fund Spectrum with a 7.6 per cent stake, and Melbourne venture capital fund Starfish Ventures with more than 2 per cent.
In a note by broker Select Equities this month, analysts Danny Goldberg and Phuong Huynh said: "We don't think this is a cheap offer price [$1.85]", but they added that the underlying growth and positive investor sentiment for online business models was likely to provide significant investor appetite and potential upside.
Frequently Asked Questions about this Article…
iSelect made a weak market debut, closing down about 15.7% and slipping to $1.56 (down 29¢) while the broader market fell about 1.5%. The article points to several factors: a relatively high issue price, some original backers selling as part of the float, broader market weakness, and investor concern about the company’s business and accounting practices.
iSelect raised about $215 million in the listing, issuing shares at an offer price of $1.85 each.
iSelect is a health insurance comparison site whose bulk revenues come from health insurance sales, earning upfront and trail fees from insurers. It also compares and sells other products such as life and car insurance, electricity and home loans.
Yes. The article highlights competitive risk because rivals can emerge easily, concerns about booking as profit money that will be collected later (potential revenue recognition issues), and the impact of some existing backers exiting as part of the IPO.
Broker Select Equities said they don’t think the $1.85 offer price was cheap, but also noted that the underlying growth and positive investor sentiment toward online business models could create investor appetite and potential upside.
Founder Damien Waller holds about a 12% stake and, based on the $1.85 issue price, is reported to be down roughly $12 million on his holding (though he invested at lower prices). Other top shareholders include US private equity fund Spectrum with about 7.6% and Melbourne venture fund Starfish Ventures with just over 2%.
Potential buyers were cautious because the company had repeatedly delayed listing due to weak market conditions and raised funds privately, some original backers exited at the IPO, and there are questions about how profit is being booked for money collected in the future—factors that can temper investor enthusiasm.
Investors should weigh the company’s revenue model (health-insurance referral fees and other comparison products), the $1.85 issue price and initial share weakness, clear competition risk, concerns about booking future collections as profit, and broker commentary that while the price may not look cheap there is demand for online business models.
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