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IPO’s in the works: Opportunities and Threats for Potential Private Firms


Category: Public Offers Private Placements


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IPO’s in the works: Opportunities and Threats for Potential Private Firms

March 22, 2013 / Proshare Research

 

 

The much anticipated revival of the IPO market in Nigeria will be hinged on two major issues, despite impressive recent up-tick in the market – the ability of prospective companies to get a right valuation for the share-worth and the improvement in market confidence levels within and without the market.

 

Globally, there have already been far more IPO’s than anticipated in 2013 based on the levels of market confidence after a tumultuous period.

 

There are positive signs for the IPO window to stay open and in Nigeria; the two determinants above would provide the key signal that the time is right. If that be the case, it will be in order to note that after the year end results and possibly the Q1 2013 results leading into June/July, we should be in a position to see if the momentum holds. The good money is that a pull back will occur after this period and the real litmus test will be the level of market sentiments driving the issues in the pipeline.

 

For 2013, return and performance stability remains the key. Investors need a strong, steady stock market and potential clarity to make for a very solid IPO market

 

Be that as it may, we would attempt an analysis of the market prospects for those anticipated companies likely to approach the market for an IPO.

 

Tomorrow Today

 

 

Promasidor Nigeria Limited and Notore Chemical Industries Limited are the two most likely candidates for an IPO consideration given their declaration of intent, even as firms such as OLAM Nigeria and a few others are exploring the window as part of their expansion plans. Truth is, these firms need the window to expand and position them in a national context and for future funding patronage.

 



Specifically, and as it relates to Promassidor and Notore, the nature of their products and markets served (the consumer goods products and diversified business model towards consumers food and farming products), should see them entering as defensive stocks on the bourse i.e. in the categories of NESTLE Plc and CADBURY Plc etc, particularly Promasidor Nigeria Limited which engages in the production of final consumer goods for daily consumption.

 




 

The five years performance analysis of the Consumer Goods and Agriculture sectors reveals the resilient nature of the sectors against market volatility which buttresses the prospect argument supporting the listing of these entities on the bourse.

 

Though, the consumer goods sector appear more immune to market volatility, the defensive nature of the sector, being a nest of companies engaged in consumer food products provides it a market entry consideration – albeit, at a price affordable for new investors or those seeking portfolio diversification.

 

Investors tend to have more confidence in the sector because companies listed in the sector historically have been relatively immune to volatilities (especially during a market downturn) in part, because of the intrinsic link to everyday consumption needs of the product customers.

 

This fact has made the sector survive the 2008 market crash without significant losses, while its recovery was faster than the entire market. Indeed, the sector erased losses incurred in 2008 and 2009 by the end of 2010 with an average sector return of 35.92% when the overall market was yet to erase losses experienced during the market downturn.

 

Similar trend was observed in the agricultural sector, which is now fully out of recession and with better, leading year-to-date performances on the Nigerian bourse.

 

We will undertake company specific issues to identify salient issues that should be of interest to investors in these two entities. One of them, Notore, already faces the entrance/threat of/from a bigger entity – Dangote Group; who seeks to go into the fertiliser business (a possible ban on fertiliser importation and the agric reform program).

 

Related News:

1.    Why Right-Issues dominate the primary market ... - Proshare

2.    UPDC to raise a N30bn IPO offering in Own REIT - Proshare

3.    Global IPO trends 2012 - Ernst & Young

4.    Will there be a revival in the IPO markets soon? - Proshare

5.    Nigerian Stock Market and the State of IPO's - Proshare

 














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