Between the lines: Drinking to some market energy

Anyone who thought the new issues market was dead should think again.

For proof, look no further than the beverages company Frucor. Issued at 150c each on June 13, the shares last traded yesterday at 198c. They have traded as high as 205c.

That is a pretty healthy rise in a market which is supposed to be moribund.

The caveat on this performance is that Frucor and its float manager, Credit Suisse First Boston, slashed their price expectation.

They had originally priced the shares at between 195c and 225c.

But a gain is a gain. Shareholders who bought on day one, subscribing for 50.1 per cent of the company, will certainly be contented customers.

They will be hoping sales figures, to be released on July 26, will support their investment.

To date, investors have had to be happy to buy the story on market chat that Frucor's V product has risen to be the number two energy drink in Britain behind Red Bull.

Another example of a strong recent listing is GDC Communications, which builds and services telecommunications and e-commerce systems.

Its shares were issued at 150c in April. Yesterday, GDC closed at 340c, making it one of the best performers this year.

Though only a small number of new shares were issued, this is still a stunning performance.

While Frucor and GDC have braved market conditions, others have not. In April and May, a number of companies felt the market was too tough and axed listing plans, at least for now.

Among those to pull floats in recent times are the technology stocks Walker Wireless and EstarOnline amid a global shakeout in dotcom companies.

Biotech company Genesis also put its listing plans on hold ("awaiting better market conditions"), and likewise the ANZ Bank, which was planning a New Zealand issue.

As any organiser of an initial public offering (IPO) will attest, a float is not successful unless the shares list at a premium.

If they do not, the promoters, who market the story, end up looking pretty stupid among their client base.

Furthermore, confidence in the newly listed company takes a long time to rebuild even if it is doing good things.

Tower Corporation is a prime example. Here is a company with a sound operation and solid earnings. But its shares struggled on day one. It has taken nearly a year for the shares to rise above issue price. That was on takeover speculation.

In the case of Frucor, the organisers could probably have got the issue away within its original price range. But like Tower, Frucor's price would have struggled. Investors would quickly have lost interest.

By marking the price back to where there was solid demand, the company is seen as a big success.

Investors are much more willing to back the company and management.

So, putting it simply, for any prospective IPO candidate the proof is in the pricing.