18/02/2009 - 22:00

Compass turns south as IPOs tough it out

18/02/2009 - 22:00

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A DIRECTOR at Compass Hotel Group has bought shares at a very favourable rate compared to the company's initial public offer price some 13 months ago.

Compass turns south as IPOs tough it out

A DIRECTOR at Compass Hotel Group has bought shares at a very favourable rate compared to the company's initial public offer price some 13 months ago.

Roland Hill snapped up a stunning bargain when he bought 2 million shares at two cents each at a time when shares in Compass had hit an all-time low of three cents early last week.

Mr Hill spent $40,000 to boost his shareholding in the company to 2.1 million shares out of 123 million securities currently on issue.

The bargain buy has already delivered a four-fold return to Mr Hill's latest purchase, based on Compass' last traded price of 10 cents.

However, the company's share price is a far cry from its debut on the Australian stock market in January last year, when it closed at a 5 per cent premium to its $1 issue price.

Despite reaching an all-time high of $1.10 the day after its debut, Compass, which owns a number of hotels in Western Australia, has experienced a tumultuous time on the bourse courtesy of the global financial crisis.

Headquartered in Sydney, Compass was not alone in its rough ride with the latest IPO analysis of non-resource companies by PricewaterhouseCoopers revealing an average 53.8 per cent decline in the value of companies that floated in 2008.

In comparison, the value of WA floats declined by an average of 63.9 per cent.

A total of 24 non-resource companies floated on the Australian Securities Exchange last year, 10 of them from WA. This WA contingent raised a total of $106 million.

The 10 companies, the majority of which listed in the first half of 2008, had a market capitalisation of $316 million.

In comparison, 91 companies listed in calendar 2007, with WA accounting for 14.

Those 14 companies raised $551 million and had a combined market capitalisation of $1.34 billion.

The standout WA float in terms of market capitalisation on listing was Ozgrowth, which was the only WA company to be over the $100 million mark. This compared to the previous year's four IPOs.

Excluding Ozgrowth, which raised $60 million, the remaining nine WA floats raised an average of $5 million each and had a market capitalisation on listing of $24 million.

"The lack of any non-resource WA listings since June 30 shows that the turmoil on global financial markets has finally reached WA," PwC corporate finance partner Perth Angel Barrio said.

"While there are more companies than ever requiring equity funds due to tight debt markets, unfortunately the public are just not prepared to invest in new listings as their confidence continues to be battered by bad news."

The tough short-term outlook for IPOs has prompted PwC to forecast that between 25 and 30 companies will launch an IPO in 2009, with most to open in the second half of this year.

"Those in desperate need of funds or with excellent businesses are seeking innovative financing solutions and alternative sources of capital," Mr Barrio said.

"Certainly, our experience is that more and more companies are requesting us to explore transactions of this nature before considering an IPO."

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