New Stock Issues
I thought I'd write about new issues this week
Ones I've bought successfully, ones I've discounted and ones coming up that I think could be a winner.
This column is a bit longer than normal so try and pay attention! Honestly some of you lot have got a shorter attention span than me.
What was I writing about? Oh yes, new issues.
New shares used to launch on the stock market all the time in the heady days of the crazy tech.
Companies even advertised in the national press urging investors to buy into the shares.
Of course, since 2000 the new issues market has been much more quiet.
I always look at all new issues coming onto the market as I find there are gems that can prove eventual long-term winners.
The one really good thing about main market new issues is they are reasonably safe investments.
They are, these days, "priced to go" so if you buy into a new issue it's unlikely the share will go down much.
But how do you spot the ones likely to go up?
Two of my biggest winners over the last year have been new issues - Sondex and Dignity.
It took me quite a bit of time to research these two and decide they were probable winners.
But first I usually take a few steps to discount possible losers.
I immediately discount any companies that are to be launched on the junior market, AIM.
I concentrate on those launching on the main market only.
Yes, I know a lot of you on ADVFN are hooked on AIM shares - a quick look at the bulletin boards confirms that!
But the risk/reward ratio for new issues on AIM is too high. Basically, I don't want any risk with my new issues, just plenty of reward!
In the two weeks before coming onto the market, a likely initial price range is suggested.
It then depends on the state of the markets as to what price the share is launched at.
These days they are more likely to be priced at the lower end of a suggested range. And generally only institutions get their hands on the shares before they launch.
New issues are much harder to weigh up than companies that have been on the market for a long time.
For example you can't simply scroll through recent news stories on ADVFN and do research in the normal way.
But here are the kinds of things I do to investigate a new issue:
I keep a diary of all new issues coming up in a notebook with their launch date.
Before launch I investigate them. I keep my eye on the press for any stories about the company. But the best thing to do is find the company's website.
A Google search will usually unearth the website.
I find out what the company does and its background.
I then try and think: how much can the company grow after it launches on the market? What sort of strategy does it have and could it go higher?
The best way I can explain how I look at new issues and how I decide whether to buy them or leave them alone is by two examples of new issues I bought, and two I didn't.
First the two that I bought
Sondex came to my attention. I was immediately interested because it was quite an unusual company. It also wasn't being hyped anywhere that I could see.
First thing I do is take a look at the company's website via a Google search.
I liked what I saw right away with Sondex's site.
It summed up for me in a sentence on its home page what it did:
"Sondex is the source of down hole technology and equipment for the global oil and gas industry, supplying oilfield service companies and national oil companies worldwide."
I like the way they sum up their business. I can understand what they do.
Now, I don't know much about the oil industry but it seemed fairly obvious that Sondex could grow its business, as it seemed to have quite a niche market.
With oil exploration on the up, it seems Sondex products are going to be sought after.
Sondex also said it was going to use some of the money from the market launch to fund acquisitions, which should push up earnings.
I ended up buying Sondex a couple of weeks after it launched on the market at 130p.
It proved a wise move
the shares are now 225p or so and look likely to get up to 300p.
I noticed this company launching on the market.
It was a bit macabre I suppose as Dignity turned out to be a chain of funeral parlours!
I did wonder whether there were any share perks
such as a coffin upgrade when I eventually bite the dust!
I did a bit of research and discovered 600,000 people a year die in the UK - that figure is quite static so it wasn't exactly a growth market
However what I did notice was Dignity intended to grow by acquiring other funeral operations - this seemed a pretty sound strategy.
I could see how earnings would grow by buying out other operators and how that would gradually lift the share price.
Also this share seemed a reasonably safe buy - after all (and sorry if this sounds awful) but people won't stop dying.
I bought some for my pension fund as it looked like the type of share that would gradually keep growing in value.
I bought some at 240p and as now they are 283p and motoring towards 300p.
Now one I didn't buy!
That was Pinewood Studios. At first glance it seemed a very exciting investment! I love movies and always fancied some kind of investment in that type of business.
What fun to have an investment in the movie business and even the TV quiz show The Weakest Link which is filmed at Pinewood.
But then I thought to myself, films are a pretty risky business. Where is the growth coming from to really lift the share price?
What about if they make some flops? There is steady use of their studio facilities and their sets do very well. But I just couldn't see why the shares would rise that much.
So I gave the shares a miss, which is just a well, as after an initial rise, they fell back.
Another one I gave a miss to was Virgin Mobile.
This launch on the market was, of course, high profile.
I didn't buy this one for one simple reason - intense competition in the mobile phone market.
Again I asked myself the question: where is the growth coming from short-term that will lift the share price?
The answer had to be no!
The Virgin float was also quite high publicity - and I often find the issues that come with the biggest hype are usually those to avoid.
For example, the Sondex float came with very little hype at all.
If there is a company that interests you, timing of your buy is quite crucial.
I usually buy in the week after the company is floated and try and watch the price to get in at the right time.
It's probably best to get in early as if it is a good one; the price is likely to gain gradually.
If you are going for a new issue even the good ones take time to build up a head of steam - so you may have to presume you're going to hold it for at least around a year to get the best value.
There is one new issue coming up this autumn that looks interesting.
That's Radiancy - a cosmetic treatment company.
It uses light and heat technology for a range of cosmetic treatments. Its products are used by beauty salons, and plastic surgeons.
It's due to launch on the main market sometime this Autumn and looks an interesting new issue.
There may even be shareholder perks! Nip and tuck anyone?
Turning to the markets it looks like an interesting week ahead as investors get back from holiday.
But beware - September can be a difficult month.
But for right now my portfolio is going well. Oil plays Burren and Cairn continue to do the business. And I'm expecting continued gains from Cattles, Serco and VP Group.
If you're back from your holidays and getting back in the markets, I wish you all the best for the week ahead.
To see a list of recent new issues, go to my BB thread.