Trade Me trades up on NZX debut

Fund managers have said the share price would add pressure on the company to perform. Photo / File

Shares in Trade Me debuted strongly on the New Zealand and Australian stock exchanges yesterday, flying in the face of critics who said the stock had been priced too high from the outset.

Trade Me shares, the price of which had been set at the top end of a $2.40 to $2.70 indicative range through a so-called "book-build" process, first traded at $2.75 and went on to finish at $2.90 - a 20c, or 7.4 per cent, premium to its issue price. At one point, the stock hit a high of $2.94.

Fund managers and brokers said the price action reflected a high level of pent up demand, mostly from retail investors.

Trade Me's initial public offer raised $363.5 million for its owner, Australia's Fairfax Media.

Fairfax, which will retain a 66 per cent stake, said it would use the funds to pay off debt.

At yesterday's close, Trade Me's market capitalisation stood at just over $1 billion, making it slightly bigger than The Warehouse's total market value.

Trade Me's chief executive Jon Macdonald said the book-build process showed that there was a healthy appetite for the company's shares.

"There was a good number of people who understood the value of Trade Me, and our potential," he said.

"So really the market set the original price and now the market is determining what it trades at."

Fund managers said the share price would add pressure on the company to perform.

Trade Me posted earnings before interest and tax of $93.5 million in the year to June and the company has forecast earnings of $99.6 million for the June 2012 year.

"I do feel the weight of those expectations on my shoulders, but I have been acutely aware of the obligation for the owners of the business, our members and our employees for a long time now," Macdonald said.

"I think this [debut] amplifies that a little bit, but it is a familiar feeling."

Macdonald said the company would have the benefit of Trade Me founder Sam Morgan and former Fairfax chief executive David Kirk - who was instrumental in Fairfax buying the company for $750 million in 2006 - rejoining the company, plus the flexibility of having its own balance sheet.

One fund manager warned against reading too much into just one day's price action.

He said Trade Me's strong gain reflected retail demand, which did not tend to be valuation-driven, and that institutions still regarded the book-build price as being high.

"The pricing was disappointing, yes," he said.

"New Zealand institutions are lightly weighted in the stock. Some of them threw their toys out when the pricing got to $2.70," he said.

"But it's had a good first day, that's all you can say, against the backdrop of a bad day on the markets," he said.

UBS New Zealand acted as advisers to Fairfax and underwrote the issue.

The brokers' head of equities Campbell Stuart said it was a good result for the company and a good result for New Zealand's capital markets in general.