What Makes A Good IPO?
The answer to the question as to what makes a good IPO on the London market is probably any IPO, given that there have only been a handful so far this year. Interestingly enough, in April, EY, who are apparently “building a better working world” said that the outlook for H2 2024 is for an uptick in IPOs. Of course, this may be the case for companies who decide that instead of being private, the excitement of seeing their share price going up every day, is worth paying a coterie of Nomads, accountants, lawyers, exchanges, auditors and PR companies is worth it. But clearly given the lay of the land, corporates need to be very sure of themselves in order to list. There has to be some sizzle: either a hot sector, a big name, great management, or of course a business with excellent results / prospects. Given the degree of difficulty at the moment, a combination of all of the aforementioned factors would not go amiss.
Listed Companies
Actually, the current environment for listed companies being so tough actually shines a light on exactly what the benefit of being listed actually is. In the old days – say more than 10 years ago, almost any company coming to market could raise money, raise its profile and either get a result, or ensure a decent ride for both shareholders and management alike. However, since the end of the pandemic bubble in H1 2021 things have become progressively harder. Retail investors and retail brokers are being deliberately squeezed out by the regulator, the red tape and cost burden on listed companies has continued to increase to Kafkaesque proportions. I would guess for many listed companies the cost of a more draconian audit last year was up at least 50%, and many companies had to suspend their shares as their audit was not completed on time. All this has means that liquidity and the ability to raise money has declined accordingly.
Stock Market Journalists
But whereas many anti-entrepreneurial journalists writing about the stock market like to see both companies and their shareholders suffer, there are positive ways of looking at the current situation. Alas, only sadistic, lefty journalists seem to get the job of writing about the stock market, and of course bad news sells. But there are other ways of looking at the market, especially if you have been in it and around it for over 35 years as I have.
European Green Transition
The tougher the market (where we are now), the better the deal has to be to get over the line, and normally the better it will be priced. Also, in order to get the deal over the line, only the best management, brokers, and service providers will be involved. We saw this with European Green Transition (EGT) in April, where Cathal Friel, who has already been a big winner with hVIVO (HVO) and Poolbeg (POLB), listed a new vehicle. The good thing about such “follow on” situations is that the deal will be backed by sticky hands who have won previously and will be happy to lock themselves in for another big win.
Golden Metal Resources
The same principle has worked with Power Metal (POW) spinning off Golden Metal Resources (GMET), the owner of Garfield and Pilot Mountain tungsten and copper projects in Nevada. The kicker here though, and something which has differentiated GMET from its exploration rivals is the prospect of non-dilutive funding grants from the US government, as it looks to secure critical metals supply away from China from 2026. Given that we are only some 18 months away from the cut off date, the market is assuming that a large grant is set to drop, sooner, rather than later. This actually landing could make the 3x rise in the stock since so far appear tame.
Helix Exploration
As well as the follow on and spin off deals, there are also the deals which are priced to win. In the case of Helix Exploration (HEX), also listed in April, the helium explorer was almost bound to see its share price more than double in just a couple of months. The key here was scaling back over £20m which was raised in the IPO by two thirds. This meant that those who were frustrated in buying into the deal were forced to buy in the market. They have been doing so ever since. Indeed, given the latest target price hike from 39p to 93p by HEX joint broker Oak Securities, who were pivotal in making the IPO a success, the aftermath of the Rudyard acquisition could see the stock rally much further from 21.6p. HEX listed at just 10p, and with two fully funded appraisal wells set to be drilled as soon as Q3, there is significant near term newsflow to look forward to.
Rome Resources
Of course, it is easy to look in the rear view mirror and say that Raspberry Pi (RPI) or GMET were always going to be winners. But the skill is of course picking the next winner. The rule with mining is to look for new resources next to where there was a previous win. Newcomer Oak Securities is currently the hot player, off the back of HEX, and one would expect happy customers there to be making a beeline for new deal Rome Resources (TSXV: RMR). Here the TSXV listed company is raising £6m to reverse into Pathfinder Minerals (PFP), and set to come to market in July. I interviewed Rome Resources earlier this month.
The team have certainly been around the block, have the requisite grey hairs, and most importantly of all are set to hit the ground running in terms of drilling for tin in DRC. Indeed, the starting gun in this respect will be as soon as funds from the IPO have hit the Rome coffers. Given how impatient investors are these days, such a quite turnaround is almost unprecedented, apart from say, HEX mentioned above. In terms of being priced to win, the IPO for RMR is at 0.3p, the lowest price at which PFP has raised cash, and 40% below the current RMR TSXV share price. Therefore, the shares should not be prone to selling by legacy holders after IPO. On the contrary, they are set up for a decent, sharp snap back when they come to market next month.
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