By Bernard Hickey
Shares in New Zealand's dominant online business Trade Me closed on their first day of trade on the NZX at NZ$2.90, up 7.4% from their NZ$2.70 issue price, which was set more than a month ago when technology stocks were higher.
Since the pricing of Trade Me shares at the top of their offer range of NZ$2.30-NZ$2.70 in early November, European markets have weakened and the global economic outlook has deteriorated, driving down many technology stocks.
Shares in Ebay, the most direct comparison to Trade Me, have fallen almost 10% since Trade Me's shares were priced in early November.
Brokers and Trade Me described the float as a success
“You can call it a successful debut - investors were probably hoping to see the price over $2.80,” said Grant Williamson, director at Hamilton Hindin Greene. “It is still early days but we are not expecting much more movement in levels than we have already seen,” he said.
More than 50% of voters in a poll on interest.co.nz on Tuesday expected the shares to finish their first day at or above Trade Me's NZ$2.70 Initial Public Offering (IPO) price.
Trade Me chairman David Kirk said the offer attracted strong support from a wide range of institutional and retail investors.
“We have a strong and diverse range of shareholders including Trade Me members, mums and dads, institutions, and Trade Me staff. We’re looking forward to serving these investors well in the years ahead. We’re also looking forward to the start of trading today, and taking the next exciting step in Trade Me’s evolution," Kirk said.
Trade Me CEO Jon Macdonald said it was great giving New Zealanders the chance to own shares in a website many of them know and use, but it was back to business as usual for the team at Trade Me.
“As we’ve said throughout the IPO process, being publicly listed will not change our focus on providing safe and trusted marketplaces for Kiwis to buy and sell," Macdonald said.
The debate for investors will focus on whether Trade Me is a mature business that generates enough dividends to justify its rich pricing, or whether can kick on to take advantage of a structural shift in retailing from offline to online and keep ahead of newer and potentially more nimble competitors.
The IPO was priced at around 15.6 times forecast earnings per share and was seen as expensive by some. See our November 9 article here.
However, demand for the shares was strong. Milford Asset Management's Brian Gaynor said fund managers were scaled back. See our interview with Brian Gaynor here.
Woodward Partners analyst Nicholas Lewis issued a research report before the float valuing the shares at NZ$2.54 each with a 12 month price target of NZ$2.80.
"We believe Trade Me will earn its investors a modest but predictable return driven mostly by its dividend," Lewis said in the report.
"As a name that New Zealanders trust, the company has now reached its mature growth phase, with predictable revenues and strong cash flows that can support a healthy dividend. As such, we believe Trade Me is an investment that should be considered more for its yield than its potential growth."
(Disclosure: Interest. co.nz has a business relationship with Trade Me. Advertising on Interest.co.nz is sold through Trade Me's advertising sales team, which receives a commission. Also, Bernard Hickey was a member of Trade Me's advisory board in 2007 when employed as Fairfax Media's Head of Digital for NZ.)