Investing Shares

QUICK GUIDE: Upcoming Float & IPO Investing

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Q:What is an IPO and is it something worth investing in?

What is an IPO?

IPO stands for, Initial Public Offering and as the name suggest this is the first time shares in a private company have been offered to the public for investment.

ipo

The company looking to IPO their shares must prepare a Product Disclosure Statement (PDS) and outline all the material information a public investor would require in order that they can make an informed decision about whether or not an investment in the company is worthwhile.

Once the shares have been purchased by potential investors, they will be floated on the Australian Stock Exchange (ASX). A float means that the shares the company has issued via the IPO can now be traded on the stock market.

Why Do Companies IPO?

Private companies decide to go public for a variety of reasons.

The two main reasons are as follows:

  1. To raise capital so that the business has money to continue to grow.
  2. To enable existing shareholders in the private company to sell part or all of their investment.

Listing a company on the stock exchange is a big achievement for the founders of a company and is usually reason to celebrate.

ipo-celebrate

What is an IPO Underwriter?

IPOs are usually undertaken with the assistance of an underwriter. The underwriter helps prepare all the documentation to carry out the listing and has a network of investors of whom they will pitch the new offering to.

The underwriter is so confident of their ability to sell the shares to the public they offer to underwrite the offer, which means if they cannot sell all the shares to the public they will buy them on their own account. The underwriter will charge a fee to the company for their services.

Part of the underwriting fee is usually paid to stockbrokers who sell the IPO shares to investors.

Is There Money to Be Made from IPO Investing?

The simple answer is, it depends.

In theory the underwriters encourage the company to sell their shares to potential investors at an attractive price. The underwriter doesn’t want to buy the left over shares that they couldn’t sell to investors, as this is too much of a risk to their business.

The timing of an IPO can also have a large bearing on it success. If the stock market is in a bull phase, then new IPOs will typically do well.

If however the market gets a little shaky (bear market) and people become more risk adverse, a new IPO is often the last thing investors want to invest in.

bull-bear

Where Can I Track the Performance of Recent IPOs?

The best website to trake the performance of recent IPOs is IPOwatch.com.au

Some of the IPOs listed in 2016 and have recorded huge returns for investors lucky enough to get stock.

A recent extract shows the the top 10 floats for 2016 (as at 27 November 2016):

recent-ipo-performance

Can I Apply for IPO Shares?

The underwriter generally determines who will be able to buy shares in the IPO.

If the underwriter only has a relatively small number of shares available for sale, they may only offer shares to their existing network of investors. If you are not in this network, you will not get an opportunity to buy into the IPO.

You can view a complete list of upcoming IPOs HERE

upcoming-ipo

 

Have you ever bid for an IPO? How did it go?

 

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Joshua Stega

The Wealth Guy

Joshua Stega is an expert financial adviser and founder of JAS Wealth in Sydney. He specialises in the habits and behaviours of wealth. Joshua has a Masters in Taxation and Financial Planning and is regularly featured in the media

M.TaxFP, LLB(Hons), B.Bus(Acc), FTI, Adv.DipFP, Dip.FP, SMSF Specialist
The information on this blog and website is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision. We recommend you consult a licensed financial adviser in order to assist you.

 

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