The IPO Buzz: Clarity After the Fall

After reading this, don’t things sound familiar?

 

Fast forward from the Panic of 1873 to the mid-1960s.

 

By the mid-1960s, trading on the American Stock Exchange became much like a wild ride on the “Cyclone” roller coaster at Coney Island Amusement Park. The American Stock Exchange was forced to stepped in and ban the use of “Stop Loss” orders, but kept the “Stop-Limit” orders in place. (Note: There is a major difference between the two. The following link explains it: A stop and a limit order.)

 

Fifty years ago, transactions were executed by hand with stop-limit orders in place, not by today’s high-speed computers, which do not have the stop-limit orders in place.

 

Does that sound familiar?

 

In the end, the stock market got through 1873 and through the mid-1960s.

 

Naturally the IPO calendar felt the effects of last week’s historic events. Four deals were postponed “due to market conditions,” but the new-issues market is far from dead.

 

Let’s take another look back — to Black Monday, on Oct. 19, 1987, when the Dow Jones Industrial Average plunged a record 22.6 percent in a single day. Naturally the IPO market experienced a slowdown; in the end, it came back.

 

The November 1987 IPO calendar produced just seven deals, according to U.S. Securities and Exchange Commission filings. Six months later, the April 1988 IPO calendar produced 29 deals.

 

Note: The IPO traffic from January 1970 through April 2010 has averaged 26.8 deals per month. That made April 1988 about 10 percent above the 40-year average.

 

There is another thing worth noting in today’s market; there has been a massive buildup of IPO filings.

 

For the year to date, through the close of business on Friday, May 7, 2010, a total of 91 companies have filed to go public. They aim to raise $20.6 billion.

 

This time a year ago, on May 8, 2009, only seven companies had filed to go public for the year up to that point. They were hoping to raise $698 million.

 

This week’s calendar has eight deals -– seven new faces and a carryover from last week. Judging from what the investment professionals say, there are two deals that have their interest: Niska Gas Storage LLC (NKA – proposed) and TeleNav (TNAV – proposed).

 

Niska Gas Storage, a Houston-based partnership, believes it is the largest independent owner and operator of natural gas storage assets in North America.

 

Dividends: The company expects to pay a minimum quarterly distribution of $0.35 per unit per quarter, or $1.40 per unit per year. At the mid-point of its $19- to $21 per unit filing range, it would yield 7 percent.

 

Consider the April 30th offering of another energy-related partnership:

 

PAA Natural Gas Storage, L.P. (PNG) is a Houston-based partnership, which was formed to own, operate and grow the natural gas storage business.

 

Dividends: The company expects to pay a minimum quarterly distribution of $0.3375 per unit per quarter, or $1.35 per unit per year. On April 30, the PAA IPO was priced at $21.50 per unit for a yield of 6.3 percent. The common unit closed Friday, May 7, at $22.70 for a yield of 5.9 percent.

 

Niska Gas plans to price 17.5 million common units at $19 to $21 each on Tuesday evening, May 11, to trade Wednesday, May 12.

 

TeleNav is a Sunnyvale, California-based provider of location-based services offering voice-guided navigation on mobile phones.

 

For the 12 months ending March 31, 2010, TeleNav reported net income of $22.1 million (or 78 cents per share) on revenues of $155.9 million.

 

For the year ending Dec. 31, 2009, TeleNav reported net income of $15.7 million (or 57 cents per share) on revenues of $110.9 million.

 

Among the company’s competitors are Garmin (GRM), Trimble Navigation (TRMB) and TomTom NV (TOM2). When their products first came out, Garmin and TomTom generated a fair amount of buzz. But over the past few years, each has been reported flat revenues and declining net income.

 

TeleNav’s industrial sector – Communications Equipment – has underperformed the stock market. Over the last 52 weeks, the Communications Equipment Index was down 6.7 percent, compared with a gain of 30.3 percent by the Nasdaq Composite Index.

 

But TeleNav is a tech company with growing revenues and income.

 

TeleNav plans to offer 7 million shares at $11 to $13 each on Wednesday evening, May 12, to trade Thursday, May 13.