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Should you invest in the WAM Microcap Limited IPO?

Wilson Asset Management are going to list another company on the ASX called WAM Microcap Limited.

Geoff Wilson already runs several successful listed investment companies (LICs) including WAM Capital Limited (ASX: WAM), WAM Leaders Ltd (ASX: WLE) and WAM Active Limited (ASX: WAA).

However, after many years of high performance they have all grown to a size where a 1% position in the portfolio is a large stake in a small business. This is why listing another LIC to focus purely on microcaps could be a clever move.

What do Wilson Asset Management want to achieve with WAM Microcap?

How much is being raised

At the moment, the offer is only open to shareholders of the current WAM entities. Each share is being offered for $1.10 each and the minimum investment is $2,200.

It will raise up to a maximum of $154 million, which would make it substantially smaller than WAM Capital.

The general offer is expected to close on 14 June 2017, so there is a while to consider if you want to buy or not.

What it will invest in

As the name suggests, it will focus on the microcaps on the ASX. A micro-cap is defined as having a market capitalisation of under $300 million at the time of acquisition.

I think this is a great strategy because small businesses have the best opportunity to grow at a high rate due to their small size.

If the investing team are able to find more successful small businesses like Class Ltd (ASX: CL1) and Afterpay Holdings Ltd (ASX: AFY) at a good price, then the returns could be a real winner.

Will it pay dividends?

The objectives stated in the prospectus are to deliver a stream of fully franked dividends, provide capital growth over the medium-to-long-term and preserve capital.

Clearly, it does intend to pay dividends. However, the nature of the small end of the market means that it may not be able to pay a consistently rising dividend year after year, although I’m sure that’s what Geoff Wilson will be aiming for.

Should you invest?

If WAM Microcap is as successful as the other WAM entities have been then it will make a great investment for shareholders over the long term.

Investing right at the start could be the best time to do it because you would be buying shares almost at the price of net tangible assets (NTA) per share. Over time, the WAM Microcap share price could grow to have a premium to NTA similar to WAM Capital of around 20%.

If you are a fan of Wilson Asset Management then this LIC could be a good addition to your portfolio.

I haven’t decided if I’m going to invest in the IPO yet, but I’d be quite surprised if I’m not a shareholder in a year from now.

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Motley Fool contributor Tristan Harrison owns shares of Class Limited and WAM Capital Limited. The Motley Fool Australia owns shares of Class Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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