Mixed market view on Trade Me
Trade Me shares fell 5c to $4 in morning trade, after Fairfax said yesterday it had sold its remaining 51 per stake in the online auction company.
Market observers have mixed views on its growth prospects.
Trade Me shares were put in to a trading halt yesterday as investment bank UBS finalised the allocation of the 202 million shares to institutions in New Zealand and Australia.
Trade Me is expected to become one of the top 10 listed companies on the New Zealand stock exchange.
Trade Me chairman David Kirk has defended the online auction company against accusations it had reached maturity and was unlikely to maintain the strong growth it has achieved over the past decade.
Kirk, a former Fairfax chief executive, said the selldown of the controlling stake was a "good thing" for Trade Me as it would increase liquidity in the shares.
He was confident Trade Me was on track to meet its prospectus forecasts this financial year. He has not ruled out moving into the Australian market but said Trade Me's priorities were in the New Zealand e-commerce space, including expanding classifieds such as motoring and jobs.
The prospectus said it would prioritise new goods, the daily deal site Treat Me and travel.
Milford Asset Management principal Brian Gaynor said Trade Me was New Zealand's largest shopping mall and "shopping malls increase in size all the time". The company's compound annual growth rate was 19 per cent between 2007 and 2011.
Gaynor said despite similar negative views on Trade Me's growth when it listed, it had continued to perform well.
He said Kirk was rubbished by many when he bought Trade Me in 2006 but it proved to be an astute buy for Fairfax.
Fairfax chief executive Greg Hywood said the company had doubled its original A$750 million investment during its ownership of Trade Me. The sale did not reflect on Trade Me's prospects.
Hywood said most of the sale proceeds of about A$616m ($768m) would go towards paying down debt, which stood at A$914m at balance date. It was likely Fairfax's net debt would fall to as low as A$100m as it also gained a further US$80m from the recent sale of its US agricultural publications.
"Following the sale, Fairfax Media will have one of the strongest balance sheets in the media sector," Hywood said.
He said Fairfax would seek new acquisitions in the digital space, but they were likely to be small. "As we look to the future, we'll be focused on continuing the growth of our digital assets. They are central to Fairfax's strategy."
Trade Me CEO Jon Macdonald said it would be "business as usual" on an operational level at the online auction site. The sell-down would have no material impact on revenue or costs, he said.
Fairfax's share price which has languished this year while Trade Me's rose 37 per cent, lifted 3 per cent on news of the sale.
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