Ashford W. Meikle, Staff Reporter
DESPITE THE lukewarm response to Supreme Ventures' (SVL) initial public offering, analysts say there is still hope for companies that wish to come to the market in the future.
Several companies have stated a wish to be listed on the Jamaica Stock Exchange over the next two years. But the receptivity of the capital market to public offers at this point in time appears somewhat limited.
"It's a difficult environment for a new IPO coming to the market because of the general uncertainty in the overall environment," said investment analyst at JMMB Securities, Doyl Smith, in an interview with Wednesday Business. His comments come in light of the recent lukewarm response to Supreme Ventures' initial public offering (IPO), which saw the public taking up just under 37 per cent of the company's share offer. In fact, some analysts have privately worried that the undersubscription of SVL could have a devastating effect on the market's psyche.
STRONG MANAGEMENT
Smith says that companies that plan to come to market must have a strong brand if they hope to succeed. "Pretty much anybody who is coming to the market now ... would already have to have a strong brand in the minds of investors, be highly profitable, have a long track record of high standards and have good growth plans in place and a strong management team."
The reason for this, noted the analyst, is "with the market being as negative as it is, it has raised the bar so that it's not really a great time for the average company. It has to be an exceptional company coming to the market."
The price of the IPO will be important, as well.
"The market will always respond to a good deal. In fact, the market is looking for a good deal but the way it is now, the deal would have to be very, very good."
Noted financial analyst and director of Today's Money, Claudette Crooks, holds a similar view. "I think the market is still hungry for IPOs but I think it has to be properly priced," she told Wednesday Business. When you are having an IPO there are two things you have to do: You have to time it properly and also you have to price it properly. Plus you must have an effective marketer."
Analysing reasons behind SVL's performance, Crooks noted, "I think most people felt that it was a little overpriced in terms of where the market is at." Crooks pointed to the "discount given to the initial private placement allottees. Most private placements come out with a band of 10 to 15 per cent discount to the IPO price. This one gave a discount of 30 per cent which is extremely high," reasoned Crooks.
She believes the discount given the private placement allottees may have contributed to investors believing that once the stock is listed they could get it a cheaper price. Put another way, with the undersubscription of the stock, the market may view this as a signal that the price was too high and re-price it upon listing.
UNFAIR TO JUDGE
Still, Crooks argued that the recent underperformance of Supreme Ventures should not be used as a yardstick for future IPOs. "I think it is a little unfair to use SVL to judge the performance of any future listings on the market. There were some unusual issues with Supreme's IPO. The market timing, for example, was beyond their control because it was not the best time because though January is a good period, this year it was an unusual, weak market cycle."
At the same time, she admitted that in a bearish market "you can't come to the market with a price earning ratio (P/E) of 30 and above."
Looking at the overall prospects of the IPOs, research analyst at Mayberry Investments Limited, Kiesa Ansine said, "The extent to which they are affected by the IPO is determined by the lessons they can take from the IPO."
"People need to read the information in the prospectus and be guided by the content so as to understand the profile of the company. Therefore, there won't be any overinflated expectations subsequent to the offer."
