As I wrote yesterday, the National Vet Care launch – now known as NATVETCARE FPO (ASX: NVL)("NVC") – has performed strongly this morning, up 27% with 1.8 million shares traded so far.
Contributors at fool.com.au are traditionally bearish on Initial Public Offerings (IPOs) on the basis that better-informed sellers are selling something to less-informed buyers, increasing the odds that the buyers (people who participate in the IPO) get a worse deal.
The statistics bear this out, with over 50% of IPOs trading below offer price in their first year of trade.
Despite these risks, I considered taking a position in National Vet Care because I felt the price offered decent value and I liked the focus on both organic and acquisitive growth. At today's prices National Vet Care still looks like reasonable value, trading on a Price to Earnings (P/E) ratio of around 13. This contrasts with established vet and retailer Greencross Limited (ASX: GXL), which has a P/E of approximately 21.
However, it is important to remember that investors are not getting an established company, as is the case with many businesses that are operated by private owners for several years before launching on the ASX.
Even though National Vet Care bought established clinics, this is the first time those businesses will be working in concert under the NVC umbrella and it would be reasonable to assume that there could be organisational difficulties.
So while NVC might still look cheap, it is cheap for a reason as investors are taking on a greater than usual amount of unknown risk. I like the idea of the business and expect it will perform well in the future, but I also think the number of unknowns is too high and I would not be surprised to see the company trade below its issue price in the next 12 months.
For these reasons, I'm not a buyer of National Vet Care at today's prices.
