Newly-listed Gentrack provided recent and aspiring IPOs with a salutary message yesterday. The investment community prefers solid profitable companies with growth potential. Surprise, surprise.
In the last year, several companies—including some who are yet to record a sustainable profit—have sought and gained a listing on the New Zealand stock market. The headlong rush to list seems to have been dominated by promises of huge growth and, therefore, good rewards at some point in the future. Some, who entered early, have had an amazing ride but are now getting a reality check, as I mused recently. However, many IPO companies carry a burden of debt into the IPO, which means some of the new capital is needed to tidy up the balance sheet.
In contrast, Gentrack has been operating for many years, has many customers, and is a proven performer with a track record of profits. It also has a credible plan and has signalled an intent to pay a dividend within twelve months. The company received a warm welcome when it listed yesterday.
Is the aura surrounding the high-tech sector and hype of stellar returns starting to lose its lustre? Maybe. However, I'm confident that the invisible hand of the market will redress any imbalances that have occurred as a result of the current lemming-like rush to list. It will be very interesting to see which companies come through the current gold rush fever well.
(Disclosure: I do not hold any shares in any of the companies mentioned in this muse.)
Thoughts on corporate purpose, strategy and governance; our place in the world; and, other things that catch my attention.