What: There doesn't appear to be any let up in the number of initial public offerings (IPO) joining the ranks of hopefuls looking to cash in on the strong investor appetite for new listings. Judging by the numerous stag profits that have occurred, it is likely demand will continue to remain high.
So what: A stag profit refers to an IPO'd company's shares listing at a premium to the float price of the stock. Four companies that have recently undergone floats, provided stag profits to their IPO investors. They also happen to be trading at all-time highs thereby providing even investors who missed the IPO with the opportunity to have bought on market in the days after the float and still be above water, they are: Genworth Mortgage Insurance Australia It (ASX: GMA), National Storage REIT (ASX: NSR), Vocation Ltd (ASX: VET) Spotless Group Holdings Ltd (ASX: SPO).
Now what: The appeal of a quick profit is of course always enticing and none more so than in a period when many expect a low return from the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO). The first real test for many of these recently IPO'd companies will come when they report their full year results in August. While most should meet their prospectus forecasts it will be the outlook statements which could have a significant bearing on their respective valuations.
What's next: It would seem likely that currently sellers (primarily Private Equity firms) are "leaving some gains on the table" to make sure a successful IPO occurs. However investors should be careful that the longer this IPO frenzy continues the more greedy sellers will become – stag profits will increasingly be based on hope rather than valuation.
Investors also need to be aware that early on it is generally higher quality businesses which come to the IPO market, the longer the party lasts the higher the likelihood that lower quality assets may come to market.
