Trade Me float tailor-made for ordinary Kiwi investors

Fairfax Media has announced plans to sell 30 to 35 per cent of Trade Me through an initial public offering. Photo / APN
Fairfax Media has announced plans to sell 30 to 35 per cent of Trade Me through an initial public offering. Photo / APN

The partial float of online auction website Trade Me would boost local markets and is likely to be popular with "mum and dad" investors, commentators say.

Fairfax Media announced plans yesterday to sell 30 to 35 per cent of Trade Me through an initial public offering.

If the float goes ahead, Trade Me would become a publicly traded company on the New Zealand stock exchange and could also be listed on the ASX.

Former Fairfax boss David Kirk, who was at the helm when the company bought Trade Me in 2006, has agreed to act as non-executive chairman of the company.

Market commentator Arthur Lim said the sale could be worth around $500 million and would be the biggest float New Zealand has seen in years.

"It's been a long time since we've had a float of any decent size and any float this size is good for the NZX," Lim said.

If sold for this value, it would be the largest local float since Vector's $592.6 million listing in 2005.

Although he had not looked into Trade Me's potential value, Hamilton Hindin Greene's James Smalley said the company could be sold at a premium.

"Its dominance in the marketplace would normally justify a premium. For example, if you take a highly competitive business like Kathmandu where there is a lot of good-sized competitors, a business like that in a float scenario is not going to generate the [same valuation] as a dominant player like Trade Me."

Smalley agreed with Lim that the company would be a strong addition to the NZX because of its size and scale.

"Trade Me is certainly a big business in New Zealand and it is certainly encouraging that another side of the economy is opening up for people to invest in if they so wish," he said.

Smalley said Trade Me could get attention from "mum and dad" investors because it had such a high public profile.

"You'd have to be living on the Auckland Islands to not have heard of Trade Me, it could well garner a lot more interest from the average retail investor."

One of the benefits of companies like Trade Me going public was that investors had a good understanding of its day-to-day operations, he said.

Smalley said the same was true of the state-owned assets, such as Genesis Energy, that the Government has earmarked for partial privatisation if re-elected this November.

Lim said Trade Me would be an attractive stock for investors if the float went ahead.

"[The company] is generating good earnings, has a very good position in the industry, it's well managed and one expects that it will continue to be a good performer," Lim said.

Despite the interest in Trade Me, Smalley said shareholders could be wary of buying stocks, given the turmoil rocking world markets.

"There is the potential for the offering to be postponed and it's probably reasonable, especially because we haven't seen the end of the fun and games happening overseas," he said.

Fairfax said the public offering would be dependent on market conditions.

Trade Me was founded in 1999 by technology consultant Sam Morgan, who was 23, and gained over 150 members in its first week. By 2005 it had surpassed one million members who were buying and selling goods online.

A December Morgan-Stanley report estimated Trade Me's value at between A$1.1 billion ($1.38 billion) and A$1.3 billion.

Swift growth

* Founded in 1999 by Sam Morgan, who was 23.

* Sold to Fairfax Media in 2006 for $720 million.

* Fairfax has proposed a 30pc to 35pc float of the company.

* This stake is estimated to be worth about $500 million.

- NZ Herald

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