Several of the most recent 52-week lows are companies that made their Initial Public Offering (IPO) debut on the ASX earlier this year.
Could the IPO market really be cooling after an explosive 2014? Or – more likely – were these shares simply priced to perfection by owners that didn't leave a lot of upside on the table for buyers?
Myob Group Ltd (ASX: MYO) – last traded at $3.47, down 11.2% to date
MYOB shares are now at a legitimate low point after identification at a 52-week low two weeks ago. Shares have sharpened their slide in recent days, falling even further despite the purchase of Ace Payroll Plus. Costing NZ$14 million, the acquisition is expected to be 'immediately earnings accretive', although it seems investors are nervous over competition with XERO FPO NZ (ASX: XRO), another big name in the New Zealand market.
To my mind there are better shares available for my money, and I personally won't buy shares until I can get a good look at a proper half- or full-year report and/or I see a price I absolutely can't refuse. It's tough to say where MYOB will go from here, but I wouldn't be surprised to see it trend down a little further as IPO sentiment cools.
Australian Finance Group Ltd (ASX: AFG) – last traded at $1.17, down 1.5%
Mortgage broker AFG had a lacklustre launch, dropping a few cents this week to trade below its offer price. This is in stark contrast with a large number of other IPOs in the past 18 months, which on the face of it is surprising.
AFG appears to be a solid business, with more than 2,300 mortgage brokers Australia-wide, strong financials and a ~4.6% dividend. However with the Commonwealth Bank of Australia (ASX: CBA), and National Australia Bank Ltd. (ASX: NAB) cutting discounts for investor loans – the main source of all home loans in Australia at the moment – the market appears worried that this will impact on AFG's business. Competitor Mortgage Choice Limited's (ASX: MOC) shares have cooled a little in recent weeks as well.
I personally will be waiting to see how things evolve over the next few months before making a decision either way on AFG. That said, I don't expect shares to fall much further because the company trades on a reasonable valuation and offers a solid dividend.
Affinity Education Group Ltd (ASX: AFJ) – last traded at $1.01, down 18.7% for the year
Shares in childcare centre owner Affinity haven't performed well at all this year, and even fell below the price of the discounted capital raising back in April. It's possible that the fall in the value of G8 Education Ltd (ASX: GEM) shares has taken a lot of buying interest away from Affinity – after all, G8 shares come with a 5.8%, fully-franked dividend.
There could be more knocks to come as well, with 5.5 million shares set to be released from escrow on the 15 of June. These shares were included as part of the purchase of a group of centres, so if the owners are set on turning them into cash they could be liquidated in short order.
A weak share price reduces the likelihood and effectiveness of capital raisings – hampering the ability to buy new centres – but Affinity has plenty of debt capacity available that it can use to drive acquisitions. The 2015 full year should also see the company deliver its first profit as new centres make their first full year of contributions. It's difficult to guess where the share price might go from here, but if Affinity can keep occupancy levels high then today's prices look like an appealing entry point for a risk-tolerant investor.
