Deciding on IPOs

srcandas

Hi all. Just a little chat on IPOs.

With the FTSE deemed by many to be a little high and my emerging markets sorted I thought what next (warning: with me it's as much my hobby as serious investing ). Then I noticed a couple of IPOs about to happen: Merlin and Infinis.

I was wondering how much the recent Royal Mail success (for nibbling investors) might persuade more than normal to have another nibble.

However chatting to my 80 year old mate and on Merlin he said he had always been told never to invest in entertainment! We discussed various film scams as discussed here but he said it wasn't for that reason but couldn't recall where this gem had come from. Does anyone recall a spectacular entertainment disaster in the past that may have generated this scare?

I was on the verge of giving it a miss then I noticed the Merlin discount to share holders. I wondered do they mail the IPO to all there recent visitors and do people respond to such things in numbers?

As for Infinis I like it because it might attract a green element and has an installed base that I like. Somehow processing methane from landfill sounds like a sound thing to do whether for profit or not.

I expect I'll convince myself to have a couple of nibbles (not a recommendation, just my amusement) but just wondered what others thought of the reasoning behind IPOs and how current state of market and recent IPOs impact things :cool:

ps My brother with his Fidelity Bolton Chinese at last has a profit of types and I think Facebook is back above offer. I guess if you wait long enough

IronWolf

It's a little over the top to generalise the entire entertainment industry as bad investments, but the business is different to others in that it requires constant innovation and success.

Take for example a retailer, once it has built up a customer base that will be fairly stable over time with much repeat business.

Now think of a film company, they make a big hit film that makes a lot of money at the box office then on DVD. But after a couple of years they wont get much revenue from it anymore, they need to make another hit and that is easier said than done.

So you can see it's very easy for an entertainment business to go from doing well to running into trouble, just by taking their foot off the pedal.

Unless its a big company like Disney, then they are mostly too unpredictable for me to consider them for my portfolio.

IPO's are generally not great investments, as noone sells their company unless they get a good price so you're unlikely to find a bargain.

marathonic

IronWolf wrote: »

IPO's are generally not great investments, as noone sells their company unless they get a good price so you're unlikely to find a bargain.

I agree. IPO's are probably one of the riskiest investments you can make with regards to equities. However, I foresee a lot of interest in future IPO's in the UK given the recent success of Royal Mail and how easily it was for the general public to invest. That'll all end when one of them flops, bigtime.

Merlin have picked an excellent time to float because stock markets are near all-time highs and there are droves of potential IPO investors that wouldn't even have known what IPO stands for before the Royal Mail flotation.

Also, Royal Mail was unique in that the government didn't want to overprice it. Merlin owners will not have a similar thought process to the government when discussing potential pricing.

kidmugsy

srcandas wrote: »

However chatting to my 80 year old mate and on Merlin he said he had always been told never to invest in entertainment!

Probably the advice he'd received was really "Don't invest in entertainment without the customary perks", which one might construe as an allusion to the casting couch, were one feeling cynical. Or realistic.

imoneyop

marathonic wrote: »

there are droves of potential IPO investors that wouldn't even have known what IPO stands for before the Royal Mail flotation.

Who will have made their £300odd profit in a couple of weeks and will be thinking this is easy money, I'll do it again and will end up getting their fingers burnt.

doughnutmachine

srcandas wrote: »

As for Infinis I like it because it might attract a green element and has an installed base that I like. Somehow processing methane from landfill sounds like a sound thing to do whether for profit or not.

I'm tempted by Infinis for similar reasons (they also have a lot of small hydro). But at the same time I don't think Guy Hands is a mug, if he is selling I'd imagine he will be getting full price.

Another company to consider is called Alkane Energy, they take methane from old coal mines and burn it for electricity.

srcandas

doughnutmachine wrote: »

....... But at the same time I don't think Guy Hands is a mug, if he is selling I'd imagine he will be getting full price.

Does that imply that floating a company when you are a major shareholder is only done when you want to bail out? I don't however see any evidence of that and a failed float I'm guessing would do him little good

Ironwolf a good reasoning and while Merlin are not in the film business they do need to keep updating the thrills and the technology. However there global position does I think give them a scalability. But to be honest I'm not looking to hold the shares long.

kidmugsy if my mate at 80 was on the couch he would be sleeping :cool:

marathonic

imoneyop wrote: »

Who will have made their £300odd profit in a couple of weeks and will be thinking this is easy money, I'll do it again and will end up getting their fingers burnt.

That's exactly my point - although the line you quoted, out of context, would suggest that I thought IPO's are a good thing for the amateur investor. That's certainly not the case.

doughnutmachine

srcandas wrote: »

Does that imply that floating a company when you are a major shareholder is only done when you want to bail out? I don't however see any evidence of that and a failed float I'm guessing would do him little good

ehhhmmm, well if you do own a company and want to "bail out" floating it is one way to get the money out? why else is he floating it?

a lot of research says that the long term performance of IPOs is poor...... something to do with the seller knowing more about the business than the buyers.....

he messed up EMI, I don't think that done him any good

srcandas

doughnutmachine wrote: »

ehhhmmm, well if you do own a company and want to "bail out" floating it is one way to get the money out? why else is he floating it?

Don't get me wrong I appreciate scepticism especially when I'm persuading myself to invest but if you are not HMGov the most common reason is to be able to raise cash (within the business) both at floatation and in the future. The company has a formula and they have taken it a long way. To expand further in a scalable and secure manner requires substantial reserves.

If he just wanted money then why not sell without the floatation hassle?

jimjames

srcandas wrote: »

If he just wanted money then why not sell without the floatation hassle?

Maybe to maximise the return to the owner?

Merlin is held by PE investors at present and as I understand they are selling to raise funds for big investment projects. I guess a trade sale is more likely to be to another PE firm that will have the same issue with big long term capital investment.

imoneyop wrote: »

Who will have made their £300odd profit in a couple of weeks and will be thinking this is easy money, I'll do it again and will end up getting their fingers burnt.

I completely agree. You only have to see some of the posts here where people have made a few quid on RM with money they couldn't afford to lose and think they can repeat it again with other shares. Sadly some are going to find out the hard way that investing isn't normally about buying and then selling again the next day for a big profit.