In share market investing, just like in sports, there is a disproportionate amount of interest given to the next big debut – whether it is an IPO or an exciting rookie elevated to the senior team.
But after the initial excitement of listing on the stock market, coverage of the new business usually drops away fairly quickly. With that in mind, where have these large businesses settled since listing, and are they worth an investment now?
Myob Group Ltd (ASX: MYO) was one of the largest IPOs in 2015, raising $2.3 billion. The stock has largely marked time since it hit the share market, currently trading around 8% lower than its initial price.
The stock reached a low point on the back of the collapse of Dick Smith, which saw all ex-private equity floats marked down by the market. Myob might still have a strong brand name in Australia, but in the face of strong competition in Australia from XERO (ASX: XRO) and more recently, Intuit’s QuickBooks Online, the investment case is not strong.
Costa Group Holdings Ltd (ASX: CGC) came to market as an agricultural stock right at the same time as the “clean and green” export to China theme was really taking off.
Courtesy of that tailwind, the stock is some 40% higher than its first traded price, though astute investors who picked it up around its lows could have earned over 60% on their money.
The company should be thought of only partly as an agricultural stock, as management has mitigated weather and water risk as much as possible by pursuing innovative growing techniques and indoor growing locations such as glasshouses and protected open air orchards.
Costa remains a fairly unique stock with a strong exposure to increased domestic fresh food consumption, as well as export markets.
Medibank Private Ltd (ASX: MPL) was arguably the most high profile public offering of recent years. With an IPO size of over $5.7 billion, it was also one of the largest. The stock is up over 45% since its debut, with much of that gain occurring since the start of this year.
Medibank operates in an interesting industry – it cannot raise the prices of its product (insurance premiums) without approval from the government, which only happens annually. In addition, it is constrained by a competitive market, where competition for customers is fierce, so any outsized increases in premiums will be met by customers ditching their policies.
However, as one of the largest players in the industry, Medibank does have the power to negotiate hard with other industry participants, particularly hospitals. Medibank management have been aggressive in negotiating more preferential deals with hospital providers, shifting more of the cost burden away from their own balance sheet.
Those savings may allow Medibank to hold its premium increases to lower levels, which, in turn, could help capture market share from competitors.
Don’t follow the media lead and simply forget about a stock after the hype of an IPO dies off. Of the three large caps on this list, Medibank appears to have the best market position, while Costa is the most interesting from a long-term growth perspective.
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Motley Fool contributor Ry Padarath owns shares of Xero. The Motley Fool Australia owns shares of Xero. 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.