IPOs such as FCStone Group (NASDAQ: FCSX) and BigBand Networks (NADSAQ: BBD) lit up last week’s IPO scoreboard with opening-day gain of about 30 percent each.
Tongjitang Chinese Medicines (NYSE: TCM) went splat. And that was after seeing its pricing terms get slashed. The IPO closed its opening day as a broken deal. It lost 2.5 percent.
However, the early-warning signals that earnings are “in” and China is “out” were flashing in the previous week.
Remember the high-profile deals of the week of March 3?
Clearwire (NASDAQ: CLWR), with mounting losses and an accumulated deficit of nearly $460 million, tanked in the aftermarket. That deal was priced at $25 per share on March 7 and closed Friday, March 9, at $22.10. Clearwire closed last Friday, March 16, at $20.02, DOWN 19.9 percent from its initial offering price. The stock sold as low as $19.52 on March 12.
No earnings there.
Sourcefire (NASDAQ: FIRE) reported a loss for 2006, but its fourth quarter told a far different story. Consider this:
For the quarter ended December 31, 2006, Sourcefire reported net income of $2 million on total revenues of $16 million, compared with a net loss of $388,000 on total revenues of $11.7 million for the same period a year ago.
The Sourcefire IPO was priced at $15 per share on March 8 and closed its opening day at $15.49. On Friday, March 16, Sourcefire closed at $16.61, UP 10.7 percent from its initial offering price. The stock sold as high as $18.83 on March 15.
Xinhua Finance Media (NASDAQ: XFML) lost 12.7 percent on its opening day. On March 8, Xinhua was priced at $13 and closed its opening day at $11.35. On Friday, March 16, the IPO closed at $10.15, DOWN 21.9 percent from its initial offering price. The stock sold as low as $9.75 on March 15.
The Familiar Vs. The Exotic
That was the setting for this week’s IPO traffic. Investors showed a distinct preference for profitable companies in familiar places, instead of those in more exotic locales.
The FCStone Group, the Des Moines, Iowa-based commodity risk management company, priced 5.1 million shares at $24 each on March 15. That was above its filing of 4.64 million shares at $21 to $24 each. On March 16, the IPO opened at $29.32 and closed at $31.13, UP 29.7 percent from its initial offering price.
The company has a history of growing profits. Consider its latest quarterly report.
For the three months ending November 30, 2006, FCStone Group reported net income of $6.3 million on total revenues of $499.7 million, compared with net income of $3.4 million on total revenues of $350 million for the same period a year ago.
Earnings are “in.”
Next was the week’s other big aftermarket performer.
BigBand Networks, a Redwood City, California-based provider of advanced video processing platforms for cable and telecom networks, priced 10.7 million shares at $13 each. That was above its filing range of $10 to $12 per share. The IPO closed its opening day at $17, UP 30.8 percent.
The company turned the corner to profitability. Consider its latest quarterly report.
For the three months ending December 31, 2006, BigBand Networks reported net income of $8.9 million on total revenues of $63 million, compared with a net loss of $5.8 million on total revenues of $26.7 million for the same period a year ago.
Earnings are “in.”
Tongjitang Chinese Medicines priced 9.9 million shares on March 15 at $10 each, below its filing range of $15 to $17 per share. The IPO closed its opening day at $9.75.
It was the second Chinese IPO over the last two weeks to go bust.
This doesn’t mean Xinhua and Tongjitang are troubled companies. Both show growing revenues. Both are profitable. It was their misfortune to go public in the aftermath of a nearly 9 percent plunge in China’s main stock index on Feb. 27, which happened to be the stock market sell-off heard ‘round the world.
Saddle Up, Partner
This week’s IPO traffic features a Bermuda insurance company (CastlePoint Holdings – NASDAQ: CPHL proposed), another energy-related limited partnership (Cheniere Energy Partners – NYSE: CQP proposed) and a provider of games for mobile phones (Glu Mobile – NASDAQ: GLUU proposed).
The Cheniere Energy IPO could draw some interest. Here’s what some may not know about the 2007 IPO market.
Limited partnerships have been the “in” crowd in 2007.
Bankers have priced four limited partnerships in the energy sector since the beginning of the year. Consider the following:
- Duncan Energy Partners (NYSE: DEP) priced its IPO at $21 on Jan. 30. On March 16, Duncan closed at $25.51, UP 21.5 percent from its initial offering price.
- Legacy Reserve LP (NASDAQ: LGCY) priced its IPO at $19 on Jan. 11. On March 16, Legacy closed at $24.65, UP 29.7 percent from its initial offering price.
- MV Oil Trust (NYSE: MVO) priced its IPO at $20 on Jan. 18. On March 16, MV Oil closed at $24.99, UP 25 percent from its initial offering price.
- Targa Resources Partners LP (NASDAQ: NGLS) priced its IPO at $21 on Feb. 8. On March 16, Targa closed at $25.55, UP 21.7 percent from its initial offering price.
Just because an IPO doesn’t come from an exotic industrial sector doesn’t mean it can’t perform well in the aftermarket.
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