Game On – Myer And Kathmandu IPOs
Another month has rolled around and we are now only 38 days away from the fat guy in the red suit bringing presents to all the good kids. Michael, our Head of Research, has prepared a paper in the Old Dog New Tricks section of this month s newsletter asking if the market s good run can continue wouldn t that be a nice present for the rest of us?
This month saw the listing of Myer and Kathmandu – the two IPOs I spoke about in last month s Message from the Chief article. Myer had a placement price of $4.10 and closed the first day at $3.75 (-8.5%). Not a great outcome, but hey – Jennifer Hawkins rang the bell in the foyer of our building here in Melbourne, and that gave us a bit of a thrill in office, the day before the Melbourne Cup. Myer, as to be expected, blamed its dull first-day performance on poor timing.
Then Kathmandu listed on November 13, and I thought to myself, Here we go. They re going to say that the stock started off badly because it came onto the market on 13th day of the month. KMD was issued at $1.70 and finished its first trading day at $1.76 (+3.53%). Not a massive upwards movement, but you never go broke taking a profit and, just for the spin doctors at Myer, Kathmandu managed this result even with the market going down!
Now IPOs aren t all about what happens on the first day. Several good companies have listed and struggled earlier in life only to become market superstars later on. But when you look at these two companies as potential investments, you really have to look at market potential.
Unlike the big miners such as BHP and RIO, where a good discovery can increase production by 100% and justify a substantial jump in the share price, Myer just sells items manufactured by third parties. So I ask myself, how could it double its profit and thereby substantially improve its share price?
The only answers I can come up with are:
a) Kevin Rudd has to give out another bonus to stimulate consumer spending (doubtful), or
b) Cost cutting, which is the path private equity company TPG chose
Of course, choosing where to invest is up to you, and there are other incentives (such as dividends) to holding shares, but as far as I am concerned Myer is going to struggle long term without a substantial change in strategy. Kathmandu, on the other hand, is probably the higher risk investment due to its size, but the company makes its own products and has a very strong niche. It should be able to continue to exploit the margins available.
One thing I love about November is that you get to see what you, your friends and your colleagues would look like if we were all still running around in the 70s. This year is the first year that I have entered the time warp and participated in Movember, and this is what I would like to share with you:
- A mo really is itchy
- My wife isn t a fan
- No, I don t think I look like a young Chopper Read I have ears, for a start!
- For some reason, it s easier to get a photo taken with your favourite footy heroes (see below!)
Fundraising for a good cause is hard work. If you feel the urge to sponsor me and support this great cause (and check out more Mo photos), please visit my Movember Sponsorship page. And if you do make a donation, enter your best stock recommendation in your message!
It s that time of the year when listed companies hold their Annual General Meetings, and directors are held to account by their loyal band of shareholders. MDS Financial is holding its AGM on November 20 at 11:00 am at the Spencer Room, Batman s Hill on Collins, 623 Collins Street, Melbourne.
If you would like to attend, even if just to see my Mo, please feel free to do so.
That s it from me for this month. Happy trading!
Damian Isbister
CEO Software & Online Trading
