The thought of investing in Initial Public Offerings (IPOs) often appeals to the novice investor. A number of online brokers have begun inviting investors to participate in IPOs and the process is relatively painless.
However, there are a number of issues that investors should be wary of, and subscribing to shares in an IPO is far from a guaranteed win. In particular, IPOs often trade below their offer price within their first 12 months of listing, and investors can usually get a better price by being patient.
Here are three of the most well-known upcoming IPOs, and an assessment of whether they reflect an attractive opportunity to investors:
Bitcoin Group Limited (ASX: BCG) – launches on 11 November, raising $20m
Bitcoin Group is an interesting opportunity whose prospectus I covered in detail last month. At the time, I wrote that Bitcoin Group was Australia's first listed Bitcoin miner, although this was incorrect. Digital CC Ltd (ASX: DCC) was the first, although it announced last month that it was shifting away from 'mining' bitcoins because it was not profitable. This doesn't bode well for Bitcoin Group.
While profitability is a major risk for Bitcoin Group shareholders, it is far from the only risk and this stock is likely unsuitable for investors without a higher risk tolerance.
Link Administration Holdings Limited (ASX: LNK) – launches on 27 October, raising $946.5m
Link Administration Holdings provides fund administration software and various back-office share registry and other services to listed companies. It is forecasting revenue and profit growth of above 20% this year and hopes to ride an increase in demand for superannuation services over the long term.
Additionally, Link hopes to grow its market share by capturing services (an estimated 58% of the market) that are currently performed in-house by super funds. These are the growth levers used to justify Link's very high valuation, which is forecast to be between 25.3x and 28.7x earnings in 2016.
While the company may be a good one, the high valuation means investors will likely get a chance to pick up shares at a lower price later. As a result, Link is not an IPO to buy into straight away in my opinion.
Integral Diagnostics Limited (ASX: IDX) – launches 21 October, raising $133.7m
Another diagnostic imager? The Australian market is quite fragmented, but with a number of big players it seems only a matter of time before the operators come into conflict with one another.
Sonic Healthcare Limited (ASX: SHL), Primary Health Care Limited (ASX: PRY), and Capitol Health Ltd (ASX: CAJ) all have a significant presence in the diagnostic imaging market. However, with a sector size of $3.6bn and the top five companies owning approximately 40% of it, there is room for another consolidator like Integral Diagnostics.
Integral doesn't appear overly expensive, with reasonable financials and its offer price of $1.91 reflecting a Price to Earnings (P/E) ratio of 15 times this year's forecast profits. Integral is valued roughly the same as similar business Capitol Health, and could prove to be a good opportunity over the next few years.
