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The Australian – ‘ISA Group…best performing listing this year’

Written by Tony Kaye

WHEN online insurance broker iSelect joins the ranks of Australia’s listed companies on Monday, as expected, it will mark an important milestone in the corporate recovery process.

Its initiation into public life – through a $215 million initial public offering – will take the tally of local stockmarket floats for the June quarter to above $1 billion, the best quarter in 2 1/2 years.

The level is still is a far cry from the boom days, pre-global financial crisis, but there are more signs of corporate and investor confidence as more companies venture back to the public boards.

Investor demand for new floats is strengthening, and there’s often good money to be made in the process. A number of the larger floats this year have already delivered strong returns, with their share prices well up since their market debut.

Take fertility service company Virtus Health (VRT), which has gained about 14 per cent since listing this month, while the high-profile law firm Shine Corporate (SHJ) has jumped about 46 per cent. Property trust Arena REIT (ARF) and data facilities owner Asia Pacific Data Centre Group (AJD) have produced returns of 4.5 per cent and 12 per cent respectively.

But the best performing listing this year has its investors jumping for joy. Indoor Skydiving Australia Group (IDZ), a skydiving facilities developer, has more than doubled in value in just five months from its 20c offer price.

Equally, however, there are multiple examples of new listings where investors are significantly out of the money on their initial investment.

IPB Petroleum, for example, offered investors shares at 50c each.

Since listing in late April, its shares have plunged to 25c. Zeus Resources has been the worst float performer to date, issuing its shares at 20c apiece.

Since listing in January, its shares are now trading below 4c.

For investors considering a subscription to a new float, thorough research isessential. And there is even historical evidence that shows the best returns from initial public offerings are often achieved by getting out on the first day. An investor who participated in all 15 IPOs this calendar year, and sold them at the end of the first day of trade, would have made an average return of 2.7 per cent.

Using the same strategy on the last 300 IPOs over the past five years, an investor would have made a 10 per cent average return.

Data also shows new stocks can quickly lose momentum after their market entrance. Only about a third of new stocks actually outperform the ASX All Ordinaries Index in the first six months of their listing.

Eureka Report’s small caps specialist Brendon Lau notes that there are many reasons why a new stock can struggle over the short to medium-term.

“If I had to make a general observation, I would say that new entrants are usually at a disadvantage compared with their more established rivals, which tend to be larger and better understood by the investment community. Only when, and if, the newbie develops a sustained track record will the discount gap close.

“Picking the right IPOs will yield you an average total return that is 52 per cent ahead of the market at the 180-day mark, while the laggards underperform by an average of 33 per cent.”

According to Bell Potter Securities’ head of research, Peter Quinton, in this market environment newly listed companies with reasonably defensive and predictable earnings are “in”, while speculative cyclical stocks are “out”.

“If (the new listing) is from one of those defensive sectors where it has got some protection from slowing economic growth, I think automatically people will look at it very closely,” Mr Quinton said.

“But as a start, IPOs need to be priced at a discount to their peer group; and all things being equal, my rough (estimate) is that the price-earnings will need to be 10 per cent lower and the yield 10 per cent higher (than their peers).”

But valuations are last on Mr Quinton’s checklist as qualitative analysis is more important. The things he looks for first are:

if the vendor is keeping any shares (company founders retaining shares is seen as a positive);

The composition of the shareholdings;

The outlook for the sector over the next two to three years; and

If the company forecasts outlined in the prospectus look reasonable.

He also tends to avoid IPOs where the company has bought a couple of other businesses to appear bigger, as this strategy has produced more failures than successes.

The ASX is listing 12 upcoming floats, including ISelect.

Of those, only four have a set listing time.

The remainder are to be advised, including the $100m float of Domus US Multifamily Real Estate Fund, which was due to list earlier this week but suddenly put its marketebut on hold – perhaps a reaction to the rapidly falling Australian dollar and the impact on its US property purchasing power. There’s no doubt the market remains volatile, and IPOs are still few and far between.

Good returns from small-cap IPOs are also few and far between.

So subscribers to iSelect will no doubt be hoping they’ve ticked all the right boxes when the company lists on Monday.

The Australian_22062013-page-001

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ISA Group issue an Expression of Interest document

Indoor Skydive Australia Group Limited (ASX:IDZ) today expanded its search for new sites and venues throughout Australia and the South East Asian region to host additional vertical wind tunnel (VWT) facilities through the issue of a formal Expression of Interest (E0I) document. The Company intends to identify sites to pursue and accelerate growth opportunities for the construction of a portfolio of world class VWT facilities in our region, as foreshadowed in the Company’s prospectus dated 1 November 2012.

CEO, Wayne Jones said “with ISA Group’s first VWT under construction and scheduled for opening early next year, we are actively pursuing locations and partners for further VWT facilities”.

“Having just returned from a visit to our supplier partner, Sky Venture in the USA, and witnessing the rapid growth of such facilities there fuelled by both high consumer demand and very positive financial performance of the existing tunnels, IDZ is keen to map out a definitive growth path for future expansion in our region,” Mr Jones added.

IDZ is presently constructing its first commercial VWT in Penrith, NSW Australia and expects to complete and open the facility in Quarter 1 of 2014, in accordance with the timeline set out in the Prospectus.

IDZ’s supplier, Sky Venture, currently has 23 wind tunnels in full operation in nine countries. Six more tunnels are under construction and are scheduled to be operational in the next twelve months.

Mr Jones added that “the E01 is aimed at encapsulating the significant interest received to date and the need to fully investigate all potential future opportunities, with the intention of expansion in line with our stated strategic objectives.”

Through the E0I, the company is now seeking expressions of interest from land owners/controllers, relevant industry operators, local chambers of commerce, city council/authorities and other such parties for the building of additional VWTs in Australia and SE Asia, targeting but not limited to owners, operators, developers or controllers of the following;

  • Hotel Complexes
  • Entertainment Complexes and Precincts
  • Destination Precincts
  • Property Investment Organisations
  • Casino Operators
  • Shopping Centres
  • Chambers of Commerce
  • City Councils, Foreshore
  • Authorities or Similar

Under the EOI process, management intends to conduct site visits and private briefings to evaluate expansion opportunities in NSW, Victoria, Queensland, SA, WA, New Zealand and SE Asia over the coming months.

Read the full Expression of Interest document here.

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Gordon Capital Report on ISA Group

Gordon Capital Pty Ltd have released a comprehensive report, examining ISA Group’s growth profile, strategic position and direction.

Read the full report