Orion Health has made an impressive sharemarket debut, but analysts say the software developer has a big job ahead in pulling off its ambitious growth targets.
The Auckland-based company's market capitalisation sailed through the $1 billion mark yesterday after its newly listed stock surged when trading commenced on the NZX and Australia's ASX at 11am.
Shares closed at $6.27 last night, a 10 per cent premium to the $5.70 issue price, valuing the company at just over $1 billion.
The total size of Orion's initial public offering (IPO) was $125 million, $120 million of which was new capital that will be used to beef up the firm's research and development capabilities as it makes a major growth push into international markets such as the United States and Britain.
Orion's technology facilitates the sharing of information between hospital departments, healthcare providers and health professionals.
Craigs Investment Partners head of private wealth research Mark Lister said yesterday's share price surge was reflective of the heavy scaling investors faced in the IPO, with high demand meaning many ended up with much smaller allocations of the stock than they had requested.
"I guess what you're seeing is a lot of investors out there - who liked the story and the opportunity but didn't get a hold of as many shares as they hoped - going and buying on market to build a bigger position," Lister said.
NZX chief executive Tim Bennett told the audience gathered at the firm's Grafton head office for yesterday's listing ceremony that Orion's IPO was probably the most significant event in New Zealand's capital markets this year.
Founded by chief executive Ian McCrae in 1993, the company now has more than 450 customers in 25 countries and posted operating revenue of $153 million in its last financial year, up 39 per cent on the $109.8 million it reported for the previous year.
But Milford Asset Management executive director Brian Gaynor, whose firm had invested in Orion before the IPO, urged caution about the company's outlook.
"It's the execution that's the key thing and they're a long way from being where they should be," Gaynor said. "It's not going to be a straight line upwards. There's going to be times when they're going to announce things that are less than what people expected - that's the nature of the type of growth company it is."
Orion was likely to enter the NZX 50 index, Gaynor said, and wouldn't struggle to get coverage by equity analysts.
Grant Williamson, of sharebrokers Hamilton Hindin Greene, said the company's shares had gained "a very nice premium" on the offer price yesterday. However, it was early days and Orion had a long road ahead.
"It is going to take them time to really crack into that US market."
The company reported a loss of $14.8 million in the six months to September 30, according to its prospectus, which did not include any earnings forecasts because the company decided its inconsistent revenue, which comes via large contracts, made providing accurate guidance too difficult.
McCrae was expected to retain a roughly 50 per cent shareholding in the business.
Geared up for 'R&D arms race'
Orion Health boss Ian McCrae says there's going to be an "R&D arms race" in the healthcare IT sector.
And he says his firm - flush with cash following its $125 million stock exchange float - is looking to bulk up its research and development team with 350 new staff over the next two years.
That would double Orion's R&D headcount to around 700.
McCrae said the IPO would allow Orion to invest heavily in R&D and "try and get a jump on the market".
Areas R&D would be focused on included mobile devices and big data.
"What this [IPO] does is give the springboard for Orion Health to become a major company in the health information space," he said. "That market is probably a $50 billion market."
McCrae said most of the 350 new R&D staff would be based in New Zealand.
• Founded in 1993 by Ian McCrae.
• Now has more than 450 customers in 25 countries.
• Technology facilitates the sharing of information between hospital departments, healthcare providers and health professionals.