Many first time investors in My Food Bag were left disappointed as the stock fell after listing on the stock exchange on Friday amid high expectations.
The shares opened trading on the NZX at $1.76, down 5 per cent on the initial public offer price of $1.85, and ended the day at $1.74, down 6 per cent.
Across the Tasman on the ASX the stock at one stage fell A27c, or 14.6 per cent, to A$1.58 before recovering to be down about 5 per cent.
The company had sold 184.9m shares to institutional and retail investors in an IPO that was oversubscribed meaning some investors had their allocations scaled back.
Ed Glennie, investment strategist at Hobson Wealth, said he was "surprised" to see My Food Bag's share price open lower.
He said it would be disappointing for those who had already invested in the company, but those buying shares on Friday could see it as great value depending on where the share price settles.
"It does show that people were more skeptical about the growth prospects than what we thought coming into this. If you're the NZX and the sellers you'll be a bit disappointed because you wanted day one investors to perform well," Glennie told the Herald.
"There were too many expectations of a quick, easy day-one profit and that just hasn't materialised. There were too many people thinking that [the stock] would do really well because it is My Food Bag - you've got the Sharesies phenomenon, a lot of retail engagement and interest, but they may not necessarily be long term holders."
Leighton Roberts, co-founder of Sharesies, said around 7500 people applied for My Food Bag through the online investment platform, however the company had anticipated more interest.
"This wasn't a particularly heavily subscribed one by our investors, interestingly," Roberts said, adding that the take up might have been affected by crossover between its customers and My Food Bag customers, who were also offered direct access to the shares."
Scaling meant the Sharesies customers received 72 per cent of what they applied for.
Roberts said Sharesies customers had actively taken part in all capital raising the platform had been able to offer.
"Sharesies investors get the ups and downs of market and have ridden a few waves now so I think it is unlikely to dampen their appetite too much at all.
"A few who missed out on the IPO are coming in now - but [there is] very little sell or 'panic' sell off happening from Sharesies investors."
Glennie said there had been a lot of sellers on opening morning.
The share market has been a bit weaker over last 2-3 weeks, not helped by lockdown, so that could be a possible reason for lower price, he said.
Harbour Asset Management's Shane Solly said Friday was a tough day for a listing, and since many people would have signed up to buy shares in the company, the stock market has corrected, experiencing a more than 2.5 per cent fall on the NZX since late February.
"The environment is not a robust as it was, and it is a tough delivery," Solly said.
"It's early days and [the stock] is still cooking, it's got the ingredients together and still in the cooking phase."
Share investments were a long term game, requiring a 3 to five year investment period, for a business like My Food Bag, said Solly.
The number of company shares that had transacted on Friday was low for a new listing, he said, reflecting less than 2 per cent of the 242.4 million shares on issue.
As of 3.30pm, 3.79m shares had been transacted against 242.4 million shares on issue.
"Normally you'd expect on a first day of an IPO quite a high level of turnover. On day one of an IPO you can see up to 10 per cent of stock issue capital turnover."
Solly said he remained confident of company valuation and share price of $1.85.
"It's an ultra short period of time to be thinking of the success or otherwise of a stock listing."
My Food Bag had been pondering a sharemarket float for around three years, but began working in earnest toward listing in mid-2020.
Chief executive Kevin Bowler said it had always been a dream among founders Cecilia and James Robinson and Theresa Gattung for the firm to become a public company that New Zealanders could invest in.
"I think this is a great point in our history," Bowler told the Herald on Wednesday.
In a statement issued prior to listing, chairman Tony Carter welcomed all new shareholders to the My Food Bag family.
"We are particularly delighted to welcome so many of our customers as shareholders following their participation in the Foodies Offer," he said.
"Today marks the culmination of eight years' work," carter said. "We've grown from a Kiwi start-up beginning life on the kitchen bench to becoming a New Zealand food powerhouse, inspiring thousands of Kiwi families to eat better each night of the week."
While the majority of shares issued in the IPO went to institutional investors there was also a Foodies Offer to My Food Bag customers who had registered interest in the investment.
A My Food Bag spokesperson declined to say how many of its customers took part in the float, although it has been reported that more than 10,000 customers and staff registered their interest.
Most of the $342m IPO proceeds went to existing shareholders selling down their holdings, including private equity firm Waterman capital which netting some $193.9m from the float.
The original shareholders retained a roughly 25 per cent stake between them while Milford Funds, Harbour Asset Management and Investment Services Group picked up 18 per cent between them.
Each of the existing shareholders have entered into escrow arrangements where they have agreed not to sell down their remaining shares until the date My Food Bag announces its result for the March 2022 financial year.
Last year My Food Bag made a profit of $8.2m and had revenue of $153.3m.
It forecasts revenue rising to $189.5m in 2021 and dipping slightly to $186.4m in 2022.
The company expects net profit in 2021 of $800,000 to be adjusted on a pro forma basis to $15.6m and rising to $20.1m in 2022.
The investment document showed that My Food Bag has been able to pay a regular dividend to its shareholders since 2018. It paid out $3.4m in that year, $3.6m in 2019 and $8.4m in 2020.
The company will pay out $13.3m to those existing shareholders in the year to March 31, 2021.
Grant Davies, investment advisor at Hamilton Hindin Greene said it was "preferable" to see money from IPOs going into growth rather than to see investors selling out.
"There's also been market weakness, some of the New Zealand yield stocks have drifted off a bit, so that's not going to help My Food Bag."
While the initial fall had been significant, Davies did not believe it would put investors off new listings.
"It hasn't gone that badly," Davies said. "I don't know that it would be enough to put the death knell on anyone else."
- Additional reporting Hamish Rutherford