Initial Public Offerings (IPO), the buzz words which the market is generally wary of, are mostly correlated with a ‘High risk high reward’ scenario. Many investors become nervous with any nosedive in a float and become reluctant to explore this area further. It is thus crucial to have a diversified exposure to the floats that sit on robust fundamentals and growth plans. With this backdrop, below is a look at three floats that have gained traction recently. 

WAM Microcap Limited

Aimed at providing a permanent and stable closed-end pool of capital: Wilson Asset Management is coming up with a float on the ASX, WAM Microcap Limited (a listed investment company), and the offer is up to 140 million fully paid ordinary shares in the company at a price of $1.10 per share, to raise up to $154 million.
 

IPO Schedule (Source: Company Prospectus)
 
As the name suggests, the company aims to focus on investing in listed entities with a market capitalisation of less than $300 million (micro-caps) at the time of acquisition, having undervalued growth profiles. A stream of fully franked dividends and capital growth over the medium-to-long term are among the key investment objectives (though these are not the forecasts). The strength is expected to come at the back of having Wilson Asset Management working as the manager.Risks relate to the ones associated with a newly incorporated company that has not conducted business to date, cyclical nature of the market, short selling, and risks on compensation for fee structure wherein the investment manager will receive compensation based on the portfolio’s performance and this may incentivize the Manager to make investments that are riskier or more speculative ones. There may be a long-term value but it needs to be seen whether the company is able to meet its objectives.

PrimeQ’s IPO

Acquisition-driven growth targeting smaller organisations: PrimeQ, an Oracle start-up that provides innovative Oracle Cloud, Applications, Technology and Managed Services solutions for customers in Australia and New Zealand, is making headlines with a $50 million Initial Public Offering (IPO) that the company aims to bring to the table early next year. The group has developed its own “IP factory”, which develops applications for the Oracle, and is like an app store for enterprises. It has a diversified client base including clients from sectors such as construction, manufacturing, transportation, and logistics (local and international brands with a turnover of between $200 million and $1 billion); and is estimated to generate $24-36 million of revenue by FY18. PrimeQ has completed around 30 enterprise resource planning (ERP) implementations in the last few months. Notably, Oracle’s former managing director for Australia and New Zealand, Ian White, joined the PrimeQ board early this year to further strengthen the business. As per media reports, the company has already raised $5.4 million through private equity funds and expects to raise $10 million by listing its shares on the ASX at $0.50 per share, valuing the business at around $50 million. Further, by listing, the company intends to capitalize on the growing business opportunities for cloud-based software solutions, while using the funds for acquisitions in the customer relationship management, human capital management, and enterprise performance management cloud applications. The key thing to note is that the group is eying to leverage acquisition-driven growth with smaller organisations as the key targets owing to already cluttered space with big players. Risks from players like Technology One Ltd do prevail, but given the time in hand, a crucial watch over the developments at group’s front in the current year can set objectives right.

Contango Global Growth

Access to invest in global equities with minimal risks:Contango Global Growth (CQG) has recently issued a prospectus for an offer of shares and options to raise a minimum of $55 million and up to $220 million (with the ability to accept applications for up to $110 million in oversubscriptions). This will be a listed invested company established to invest in a diversified portfolio of globally listed quality high growth companies with the primary objective of providing long-term capital growth. The key aim is to provide investors with exposure to globally listed high growth companies (20-40) as it can help towards having a valuable portfolio diversification relative to other asset classes, such as Australian listed equities (The S&P/ASX 300 Index is heavily concentrated towards financials and resources stocks), Australian property and cash.  Further, returns (before fees, costs and taxes) that exceed the benchmark by more than 3% p.a. over rolling three-year time periods, but with lower volatility than the benchmark, are being eyed. The benchmark for the investment company has been highlighted to be the MSCI All Country World Index ex-Australia that reflects the breadth of sector, geography and companies as the investment universe of the investment strategy. A key thing to note is that the company’s portfolio will be constructed in accordance to a “Quality Global Growth” strategy, which requires each equity to maintain a durable competitive advantage or economic moat. Importantly, the investment objective of the company is to pursue quality growth businesses with high returns on invested capital, superior growth prospects and low or no debt, and seeks to grow wealth over the long-term by outperforming the benchmark with minimal risk. The company might also invest in exchange traded derivatives and futures contracts (to reduce or gain exposures), currency positions, cash and other permitted investments. It is interesting to note that WCM investment management group is advising the company, and has approximately A$21.2 billion under management (as at March 31, 2017) with client base that includes mutual funds, pension plans, endowment funds and investment companies and superannuation funds in Australia. On the flip side, the company does not seem to have any contractual right to terminate the Adviser in casethe company does not perform as expected. There are other risks pertaining to lack of operating history, market and foreign investment risk. Further, conflicts of interest may arise as the Manager may act as the adviser to other funds and investment vehicles, which can be detrimental to the company and consequently shareholders. The closing date for the IPO is June 08, 2017.

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