Last week, MYOB Group Ltd released the prospectus for its initial public offering (IPO) in what is bound to be one of the biggest public floats of the year. The accounting software provider will seek to raise up to $833.8 million from retail and institutional investors in what could give the company a market capitalisation of $2.26 billion.
Before you buy into the IPO however, you should consider these 10 important facts:
- Price. As was the case during Medibank Private Ltd's (ASX: MPL) float last year, investors have no idea how much they will end up paying for each MYOB share. The company has set an indicative price range of $3 to $4 while an exact dollar figure won't be known until 1 May.
- Market Capitalisation. A total of $831.7 – $833.8 million will be raised during the float, giving the company a market capitalisation of $1.9 – $2.26 billion. Its enterprise value will be $2.34 – $2.69 billion.
- Value. Depending on the price at which the shares sell for, MYOB will trade at 20.9 to 24.9 times net profit after tax and amortisation (NPATA).
- Dividends: MYOB provided an implied dividend yield forecast of 2.8% to 3.3% for the 12 months ended 30 June 2016, with the intention to payout around 60% to 80% of overall earnings. While that is certainly nothing to scoff at, there are other stocks offering far greater dividends for income investors.
- First Test. As reported by the Fairfax press, MYOB's retail brokers JBWere, UBS Wealth Management and Bell Potter have been told to bid for the shares by Thursday April 9. That will provide a good indication of the level of demand for the $830 million float, which could also provide a better estimate for the price at which the shares will list on the ASX.
- Customers. MYOB claims to have 1.2 million customers. Of these, 116,000 are paying users of its cloud products and 389,000 are paying users of its desktop products. The other 716,000 are non-paying users of its desktop products (many of which MYOB believes will continue to migrate towards its cloud-based services).
- Risks. One of the biggest risks facing MYOB is if it is unable to increase average revenue per customer. To do that, more and more non-paying users will need to switch to cloud solutions while MYOB will also need to pass on price increases and introduce new services. Competition could certainly impact its ability to achieve this (more on that below).
- Rivalry. MYOB has grown strongly under the control of Bain Capital, but its ability to continue growing could be seriously hindered by competitors Reckon Limited (ASX: RKN) and, in particular, XERO FPO NZ (ASX: XRO). Xero is a pure cloud-accounting software provider and is quickly gaining market share in Australia, New Zealand the UK and the US. MYOB is more focused on the Australasian markets.
- Popularity. It is clear that XERO is becoming increasingly popular on a global scale with its Google search term popularity having surged past that of MYOB. That is a concern for MYOB, which has come under fire from Xero's CEO Rod Drury for not disclosing the appropriate information in its prospectus.
- Patience. Investors also need to remember that demand can be high for a company's stock during and immediately after its IPO, but can then cool in the weeks or months that follow. While that certainly isn't the case for all IPOs (queue Medibank Private), investors who wait a while could be presented with a more attractive price to purchase MYOB shares.
