All Ords Report 03 November 2016
Will feathers fly when Inghamís floats on the Australian Securities Exchange (ASX) this month?
A private equity firm, TPG, acquired the company in 2013 and expect to raise between $1.1 billion and $1.7 billion.
Whether investors get excited about this float will depend on how well it is marketed. Generally, big floats with big brands attract retail investors, but that doesnít make it a good investment. Letís not forget the Myer Holdings Limited (MYR) float in 2009. Six years on the shares are still trading well below the issue price.
Remember, real demand must come from financial institutions who will have a significant impact on the share price post float. It is only after the fanfare, when the shares trade on market, that you see what the shares are worth.
ASIC released Report 494 which said that larger floats were being offered to sophisticated investors, and riskier ones to smaller retail investors. So do your research, seek multiple opinions, not just the opinion of a broker, and preferably not a lead manager involved in selling the shares. The lead managers have a vested interest in the float, so can you trust their opinion?
More than 50 per cent of floats trade below their issue price in the first 12 months post float. So if you buy consider taking a profit post float, and decide before you buy how much you will risk before you sell if the shares fall.
Why do you need to know this before you buy? Simply because proper risk management requires you to know how you will manage the share if it slips into a loss situation.
This is part of the discipline I teach in the Diploma of Share Trading and Investment. So if you buy shares and you don't have a plan to manage them what you are doing is high risk. However, you can change what you do with the right knowledge.
Generally, I don't buy into floats, simply because there is no history in terms of what the market is willing to pay for the shares, and without historical price data going back at least a few years I cannot apply my knowledge of technical analysis to determine how the share price may unfold in future.
If you would like to listen to a discussion about company floats a good place to start is a previous Talking Wealth podcast where Dale Gillham talks about a real estate float. This will give you ideas about what to look for. You may even want to look up this share and see what it trades at today.
What do we expect in the market?
The Australian share market slipped lower last week, below 5400 points, as the world geared up for festivities around the Melbourne Cup yesterday.
Traditionally, the market holds up just prior to the Cup, and then falls for a couple of weeks when the party is over, therefore the current decline may be a little early but itís still well timed.
The analysis indicates that the current move below the September low this week is positive as it ties in with what the analysis has indicated for some time was likely to occur, that the market may need to trade below this level to confirm the yearly low.
I believe that most of the current decline has already unfolded, the low is very close, and the market is likely to find support over the coming weeks from a long term support zone at around 5200 points, before the next yearly cycle rise commences.
During these moves some shares will rise, some will fall, and others will trade sideways, which means that active traders may move some shares out of their portfolios until risk levels fall.
As we wait for the market to confirm the support for the next rise, I suggest that investors remain patient as the rise out of the yearly low is generally quite strong.
Dale Gillham is Chief Analyst at Wealth Within