NZ tech stocks fight for pre-Olympic selection

While many Sydneysiders are planning their exit before the Olympics, two New Zealand tech companies are clamoring to make IPOs in Australia before the inevitable slowdown during the big event.

          While many Sydneysiders are planning their exit before the Olympics, tech companies are clamoring to make it to market before the inevitable slowdown during the big event.

          Indeed, the only fever in the stock market right now is in the race to float IPOs (initial public offerings) before September 15, as some 30 companies, most with technology-related focuses, wait in the wings.

          "There's definitely not the same sort of fever in the market that there was in the heady February and March days earlier this year," says Tom Booth, broker at Barton Securities, which is taking the New Zealand-founded eStar Online Trading to market, hopefully by the end of this month.

          An e-commerce company in the business of facilitating securities transactions online, eStar closed its IPO early and oversubscribed at $A20 million, double the $A10 million it had hoped to secure.

          "While the fervor may have left the market, the tech stocks have not yet had their day," says Booth. "They are here to stay in some shape or form, and the sector is still, and likely to remain, big, like it or not. Investors are admittedly much more cautious, but they're still happy to allocate some money to the sector."

          There's certainly been an improvement in market sentiment, which is no doubt proving encouraging to many forthcoming floats, but Booth believes there's still going to be a lot of debris.

          "The air has been cleared and the quality of offers coming to market has no doubt improved."

          "Many of the bigger tech stocks that listed prior to April are still in the enviable position of being able to shift through the debris," he explains. "But many of the smaller companies will be forced to team up with these bigger ones who have managed to get stronger and who will turn out to be the big winners."

          Booth also believes there has been no real return to valuing tech stocks on traditional fundamentals. "The market still doesn't know how to value these stocks," he says. "And there's still some fluff -- and maybe overly optimistic forecasts -- in many that are coming to market."

          But if there's hasn't been a return to traditional valuing techniques, there is a feeling that many of the latest floats do have stronger fundamentals than many of the dot-coms that listed in the boom times at the start of the year.

          "The air has been cleared and the quality of offers coming to market has no doubt improved," says Paul McCarthy, CEO of The Digital Media Group, a new media company specialising in online financial content and intelligent software, best known for its equitycafe.com.au investment website.

          McCarthy, who hopes to float his company on September 12 after raising $A10 million through a public issue of up to 20 million shares, believes investors are now looking for quality companies that are genuine in their ambition to grow their businesses.

          "Now, more than ever, savvy investors will focus on good general management of the dot-com and tech companies that plan to list, but will still look for a balance between growth and profitability." says McCarthy. "It's still important to remember that some of the best technology investments to date, like Yahoo, Go2Net and LookSmart, all listed before being profitable.

          "What they had in common, however, was great management teams with proven experience in managing high-growth enterprises and a vision for the future online media environment. I think investors recognize the importance of companies being able to demonstrate a clear, achievable route to profitability. Sound management of cash flow is also vital for any company, especially those in high-growth stages of development."

          McCarthy believes Digital Media's listing, for example, is the result of a well-disciplined business development strategy. "We were founded in the Australian Technology Park, having satisfied the criteria for incubator venture capital from the Federal government's Creative Nation Investment Program. We have since attracted angel investors who have overseen the development stages considered necessary for a successful listing."

          New Zealand-born telecommunications software supplier CommSoft, which plans to list on both the Australian and New Zealand stock exchanges come September 13, believes that its ability to attract three rounds of venture capital to date also stands it in good stead for a successful listing.

          In this case traditional fundamentals like being profitable and recording outstanding revenue growth also play a role. "We have achieved an average compound revenue growth of more than 30 per cent per quarter over the six quarters to March 31, 2000 and a net profit after tax of $A889,000 for the year ended March 31," comments chief operating officer Rodney Martin.

          "We're mindful of the negative sentiment that dot-com and tech cash-burn problems have created for companies like us that are following in their wake," he adds, "but we already generate cash, we don't burn it, and we believe that investors can sort the wheat from the chaff."

          The company hopes to raise $A17 million by offering 15.45 million shares at $A1.10, aimed at achieving a market capitalization of $A68 million.

          Another pre-Olympic float hopeful is vertically integrated telecommunications services group FlowCom, which hopes to list on September 6, after raising at least $A25 million to give it a market capitalization of between $A101.4 million and $A106.4 million.

          Of course, many won't make it pre-Olympics, with Western Australian IT outsourcing company Amcon Solutions, for one, happy to debut in October. The company, which has become one of the state's largest IT service providers since starting in 1996, hopes to raise $A12 million.

          According to an Australian Stock Exchange spokesperson, the market has steadily picked up, and with it the number of floats, since the mid-April correction, with the line-up including both brand-new hopefuls as well as companies that originally planned to list several months ago, but opted to wait for some recovery in the market.

Join the newsletter!

Error: Please check your email address.
Show Comments

Market Place

[]