Appetite for 'sexy' IPOs wanes
Technology companies queuing up to list on the NZX may have to rethink their valuations after a major wobble on the exchange today, analysts say.
Xero shares plummeted 11.2 per cent to $23, half their record high, in early trading, and NZX debutant Serko slumped 17 per cent before both stocks staged a partial recovery.
Business software firm Gentrack will list on the exchange tomorrow and hi-tech manufacturer ikeGPS next month.
Wherescape, Eroad, Orion Health, Vista, PowerbyProxi and Fronde are among about a dozen other technology companies that have signalled an interest in going public.
Xero's decline from $29.31 on June 16 prompted a query from the NZX.
Xero chief financial officer Ross Jenkins responded that the company was complying with its continuous disclosure obligations.
There was a "substantial general rerating" of cloud-software stocks in March and April, but Xero was confident in its growth strategy, he said.
Forysth Barr analyst Blair Galpin did not believe the volatility would seal the initial public offering pipeline to new tech listings.
But he said that if it continued, they might need to be more conservative about the valuations at which they floated.
"Any stock has got a value at the right price, but people are thinking more clearly about the fact that it will be some time before some of these companies become profitable," he said.
New Zealand Assets Management chief investment officer Greg Peacock said there had been a move out of fast-rising growth stocks in March and April into yield stocks that had not been making gains.
"I think appetite for 'sexy' IPOs has probably declined in favour of the more yield-type stories; secure earnings and safety," he said.
Another analyst said an update that Xero provided on June 16, in which it said its annualised monthly revenues had climbed from $93 million to $100m between March and May, may have been viewed as disappointing.
A subsequent slide in its share price may have triggered panic selling from some retail investors this morning, he said.
Jenkins said Xero would issue a revenue forecast for its 2015 financial year at its annual meeting next month.
Xero last year just achieved the target chief executive Rod Drury set at last year's annual meeting of growing its annual revenues by at least 80 per cent.
Serko chief executive Darrin Grafton noted that Serko's downward drift was on low volumes.
Its $22m IPO was more than three times oversubscribed, pointing to a likely premium on listing, but its 3 cent gain was short-lived.
Grafton speculated that Serko might have experienced some fallout from Xero's decline and said some retail investors who had had their applications heavily scaled back might have chosen to sell rather than keep their comparatively small holdings.
Serko had picked up 900 investors through its IPO, including 300 retail investors who had picked up 800,000 shares between them through its public pool, he said.
It was now time for Serko to "over-deliver and prove to the investors who have supported us what we are really about", he said.