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Hungry market can expect a listings feast
Investments in smaller companies are in vogue, and listings are coming thick and fast, writes ZILLA EFRAT
THE market, said to be hungry for investment opportunities in smaller companies, could soon be in for a feast of new listings. The experts say investors have an appetite for smaller companies, fuelled by a search for above-average returns and demand created by a proliferation of new emerging-market funds. New listings, which are sometimes accompanied by much hype, have also been livening up the market, as witnessed last month when Avis, Tourvest and fast-food group Nando's made their JSE debuts. Nando's, which planned to raise R25-million through its well-marketed listing, landed up being 24 times oversubscribed. It was the most actively traded share on its first day and has since been trading 50% above issue price. Stockbrokers and merchant bankers report an uptick in the number of small-to-medium, as well as family-owned, companies looking to come to the market. Investec's Les Penfold says: "We have picked up more interest over the past six months than over the past two to three years." Pat Egan, head of corporate broking at Smith Borkum Hare, says: "We have a fair load, although not a deluge. People are coming to us." Norman Lowenthal, senior partner at Lowenthal & Co, which specialises in listing small companies, says: "We expect a surge in new listings. We are busy with half a dozen already. Some are very good companies in the right sectors and are sure to generate a lot of interest." Profurn chairman Gerald Rubenstein, a dealmaker who has been involved in over 60 new listings in his career, also notes heightened interest. "While blue chips are doing okay, their growth prospects are moderate and unlikely to beat that of some of the new listings in the short term." More than a third of the companies that have listed since the beginning of 1996 have not performed, but the successful ones have done spectacularly well. Says Penfold: "Last year smaller companies experienced better growth than bigger companies. They can move faster to counter market conditions and are better able to exploit niches." The success stories are attracting others to the party, but not only because the market is receptive. In a climate of high interest rates, a listing can be cheaper than debt. The paper can be used for acquisitions or to lock in key staff members with share options at a time when skills are scarce. A stockbroker who did not wish to be named says a growing trend is for family- owned businesses to seek a listing to combat the problems of estate duty. "Shares can be put into a trust." Most, but not all, of the market players approached expected the number of new flotations this year to outstrip last year's 28, but few forecast a boom. So far this year, the JSE has attracted eight newcomers - Celtron, Stocks Hotel & Resorts, Softline, Megacor Holdings, Mustek, Tourvest, Avis and Nando's - compared with seven in the first four months of last year. Half of this year's listings have found a home on the JSE's Beverages, Hotel & Leisure board. Continuing last year's trend, some are the products of restructuring or unbundling and the majority are small- to medium-sized companies. "There is not enough economic activity at the moment to attract big companies to the market," says a stockbroker, who describes the current spate of offerings as "candy floss". "They are trying to take advantage of a bubble and this could lead to dangerous overvaluations of some companies," he says. At least a dozen more companies have announced their intentions to float on the JSE this year. The JSE was ranked the world's 13th-largest bourse at the end of February by number of companies. Amalgamated Appliances makes its debut this week. Zinc and copper mining company Maranda Grenfell and electronics group Stantronic follow later this month. Also poised to make an entrance are food groups First SA Food, Molope Bakeries and Kairinos Foods, as well as Woolworths, Truworths International, Gauteng Horse Racing Authority, Nucleus Property, Conservation Corp, and risk management company Glenrand MIB. In addition, security group Coin Security, Table Mountain Aerial Cableway and IT companies such as Pinnacle Holdings, Computer Configurations and FSA look set to follow. The market can also expect a number of small complementary companies to be put together for a listing. This is already a growing trend, as can be seen in companies like First SA Food and Tourvest. Much of what happens on the SA listings scene this year will depend on market conditions. What does appear to be certain, however, is that this year's debuts will be nowhere near the 211 seen during the boom of 1987. While there will be some spectacular successes, there are also certain to be some dismal flops.
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