The Business Herald’s markets and banking reporter.

Stock Takes: Lifeline for pipeline

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Metro Performance Glass CEO Nigel Rigby. Photo / Colleen Tunniclif
Metro Performance Glass CEO Nigel Rigby. Photo / Colleen Tunniclif

Metro Performance Glass' solid sharemarket debut provided the shot in the arm New Zealand's initial public offering (IPO) pipeline needed.

The glass supplier shares closed at $1.76 on their first day of trading on Wednesday, 3.5 per cent above their $1.70 issue price, and closed yesterday up another cent at $1.77.

Metro celebrated its float at exchange operator NZX's Auckland offices and there was a palpable sense of relief in the room when the stock rose after trading commenced.

Five companies have listed since June - technology developers Serko, Gentrack and ikeGPS, as well as fruit marketer Scales Corporation and Metro.

Of those, only Gentrack and Metro shares finished their first day of trading at premium to their offer prices.

There would have been some serious questions being asked about the prospects for the various companies waiting in the wings to go public had Metro stock gone south this week.

Vista Group, which provides software used by cinema operators, expects to list on August 11 and Eroad - a developer of technology used by transportation firms for managing and paying road user charges and tracking fleets - is targeting August 15 for its NZX float.

Several other technology companies, including Wherescape and Orion Health, have been tipped to list this year and whether or not they go ahead with listings could well depend on the success of the Eroad and Vista floats.

Sources say Wherescape and Orion are proceeding with their plans to go public despite the recent hiccups in the IPO market.

Metro's solid start to trading this week may have been bolstered by expectations that the company will enter the NZX50.

Milford Asset Management executive director Brian Gaynor says it's "almost inevitable" that the glass firm, which has a market capitalisation of close to $330 million, will become a component of the benchmark index.

"Because this company is expected to be included in the NZX50 on the first revision everyone who is a manager of a relative fund has to look at [investing] in it, whereas they don't have to look at a Gentrack or a Serko or any of those other ones," says Gaynor.

Milford Asset Management snapped up a 5.1 per cent stake in Metro.

NZX considers criteria such as free float - the proportion of shares freely available for trading - and liquidity when carrying out its monthly and quarterly reviews of the index.

The NZX was unable to comment on Metro's prospects for entering the index as it was "market sensitive" information.

Brokers Forsyth Barr have initiated coverage of Pacific Edge and slapped an "outperform" rating on the developer of non-invasive bladder cancer tests, while also saying the firm could become a takeover target.

Analyst Chelsea Leadbetter has put a 12-month target price of $1.10 on the biotech stock, which closed up 1c yesterday at 76c.

In a research note she says the outperform rating reflects Forsyth Barr's view that the company can capitalise on the substantial opportunity presented by its Cxbladder product.

"The model is highly scalable and we have early evidence of progress in the US," Leadbetter says.

But she has also placed a "speculative" risk rating on the stock, pointing out that while the company is making some inroads into the US, its commercial model remains unproven.

"It is a big task to change clinical process," Leadbetter says. "There is a risk that [Pacific Edge] is unsuccessful in commercialisation and therefore has little value."

Forsyth Barr has forecast revenue of $100 million by the 2021 financial year, which compares with Pacific Edge's own target of reaching that revenue level by the 2019 financial year.

Leadbetter says there's potential for the biotech developer to become a takeover target, although that would be more likely to happen once the firm has advanced its commercialisation process.

Pacific Edge shares have shed around 56 per cent this year since hitting at record $1.74 in January after the stock got caught up in a global sell-off of growth-focused equities.

The company this week launched an e-commerce platform in New Zealand through which customers can purchase the tests "for use in the convenience of their own homes".

Eroad is already gearing up to spend the proceeds of its upcoming sharemarket float, having launched an advertising campaign on the back of buses and bus shelters aimed at bolstering its software development team.

Chief executive Steven Newman says the central city route the buses follow passes through areas where some other well known Auckland software developers are based.

He wasn't naming names, but Stock Takes guesses the buses will be getting pretty close to Xero's Auckland office in Parnell and Orion Health's Khyber Pass headquarters.

"We chose the route quite carefully," Newman says.

He says Albany-based Eroad is looking to employ around 30 additional developers this year. Eroad employs roughly 130 staff, close to half of whom are involved in technology development and related activities.

The recruitment advertisements promise flexible work hours, competitive salaries, a wellness programme, swanky sofas, unlimited coffee and the ability to "wear whatever you like".

Competition between software firms for top talent is intense. Last year cloud accounting systems provider Xero was offering $10,000 bonuses to developers who joined its Wellington-based team.

Eroad will raise $40 million in new capital through its initial public offering, which it will use to fund growth ambitions, particularly in the US.

Newman says some of the cash raised through this month's listing will go towards employing additional staff.

One giant step for investors...

Rocket Lab founder Peter Beck at the unveiling of the Electron the worlds first Carbon composite launch vehicle.
Rocket Lab founder Peter Beck at the unveiling of the Electron the worlds first Carbon composite launch vehicle.

Investors could get the chance to take a stake in New Zealand's entry into the space race.

Auckland company Rocket Lab is developing a rocket - a high-tech cousin of the Saturn V rockets that flew to the moon - to put satellites into orbit 500km above earth at a fraction of the cost of more established competitors.

The Government has committed $25 million, but the company's principal funder is now Silicon Valley investment giant Khosla Ventures.

While talking about reasons for keeping the financial arrangements under wraps, founder Peter Beck said an IPO was an option.

"We're a private company and if we list that will become public but until then we don't want to share it with our competitors."

Khosla operating partner Sven Strohband said it was "premature" to decide when and where to list the firm. "Let's first fly a few rockets ..."

- NZ Herald

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The Business Herald’s markets and banking reporter.

A business journalist for more than four years, he also writes the weekly Stock Takes column.Christopher’s main focus is the local sharemarket and issues facing Kiwi investors. He covered manufacturing and retail in his previous Herald role and maintains a special interest in New Zealand’s growing trade relationship with China.

Read more by Christopher Adams

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