10/12/2013 - 07:04

Motley crew signals market shift

10/12/2013 - 07:04

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Resources stocks are almost nowhere to be seen as other players seize the day.

IPO's: More foreign companies are listing on the ASX.

There's no doubt it has been a tough year in the markets.

So it is good to see some life coming back into the corporate finance side of things, with a spurt of new listings either going ahead or planned.

Unfortunately, not much of this is in Western Australia, and very little of it is related to mining.

In fact I can’t help wonder if the IPOs being offered to the market aren’t reflective of the weight of money looking for a home, rather than the strength of what is being sold.

While I can’t claim to be an expert on any of the planned new listings, and I have not read one of their prospectuses, there does seem to be an air of opportunism – just as we see when mining is running hot.

High on the list are retailer Dick Smith and television broadcaster Nine Entertainment Co Holdings. Both have been in the hands of private equity owners that want to sell down. Both are well-known brands in tough and competitive industries that are being hit badly by consumer drift to the internet.

I am always wary of the private equity story, even though I admire the Dick Smith turnaround based on the numbers I have read.

Another theme among the new listings is health services. There are two companies – Lifehealthcare Group and EBOS Group – that sell medical products at wholesale, business-to-business and consumer levels. In addition there is Metlifecare, which is also categorised as health care equipment and services, although its business appears to be around retirement villages and associated products.

Metlifecare and EBOS are both already listed in New Zealand, among the rising number of foreign entities coming to the ASX (see below).

This is an interesting cluster of fresh entities for the ASX, but judging why they have a mini-rush to the market may well be complicated by the NZ connection. Is it the managers of health services companies who believe there is a good window to get on the ASX, or is it New Zealanders? Or both?

After that was another odd pair of new listings – Freelancer and Veda Group. Both are businesses that effectively would not exist without the internet.

Freelancer brokers all manner of professional and administrative services that can be done remotely, allowing cheap labour in all manner of sectors to be sourced by businesses; usually those operating in more expensive countries.

Veda Group is offering consumers easy access to their credit history and sells them advice on how to improve their standing. 

Despite my concern about old brands such as Nine and Dick Smith dealing with the rise of the internet, it is hard to know if that is any tougher than a new company with an online-focused business model. In both cases, I suspect, going public is as much about getting profile for their brands as it is having access to capital.

Transport group McAleese and tourism player Sealink Travel Group might have substantial businesses but, like others above, competition is fierce. And I wonder what they offer to investors other than the ability to diversify their holdings into fields that have traditionally been low margin.

Finally, the last of the odd assortment that I scanned was Sunbridge Group, a menswear retailer in China. Let’s hope for investors in that company that it’s better than menswear here – I have seen so many names disappear over the years, and that was before the internet arrived.

Perhaps I am just being parochial because very few of these names mean anything to me and seem to be odd listings. Yet when I lump them together as a group I am not inspired by the picture I am seeing. I guess all I can do is watch with interest, like always.

A worthy item of interest is the fact that foreign entities as a percentage of the total number of listed companies and managed investments (LMIs) on the ASX is on the rise, and returning to pre-mining boom levels.

In March 2002, 75 of the ASX’s 1,461 companies (or 5.6 per cent), were foreign. That dropped as low as 4.1 per cent in December 2005 when just 71 foreign entities were listed and the mining boom was starting to really take off, pushing the ASX to 1,807 companies or LMIs.

The foreign composition of the stock market stayed at that level, or thereabouts, for five years as the ASX climbed to more than 2,200 companies and LMIs.

But in 2011 the trend changed, and the number of foreign entities as a percentage of the total ASX rose consistently, in part because more were listed but also because the number of Australian companies fell from a peak of 2,101 in June 2011.

In October, 105 foreign entities represented 5.4 per cent of the 2,033 companies and LMIs listed on the market. 

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