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Tuesday 11

December, 2018 9:40 AM



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OnMarket Opening IPO Access to Retail Investors

OnMarket Opening IPO Access to Retail Investors

By Bob Kohut 16.10.2017


Financial Technology now available is breaking the stranglehold on access to the IPO market exerted by investment banking firms.  Fintech, as it has come to be known, has disrupted traditional approaches to financial transactions ranging from basic banking to commercial loans. 
 
Now a new online funding platform at onmarket.com.au has opened the door for retail investors to truly get in on the “ground floor” of a new initial public offering (IPO), historically available only to institutional and high net worth investors.

The rationale for the historical strategy is simple – go where the money is.  Companies go public for one reason – to raise money.  Each IPO has an offer size and companies are eager to meet that number and hopefully oversubscribe the offer as a sign the company is a good investment.  Rather than wait for smallish investments from retail buyers, companies have opted for the big investment dollars from investors with more resources.

This has left most retail investors in the position of buying into an IPO once it begins trading on the ASX, often at prices above the offer price available to the privileged investor.  The revolutionary OnMarket platform allows retail investors to bid on shares of selected IPO’s at the offer price.  In what is essentially an auction format, retail investors bid on the number of shares they wish to buy, not the price.  Although retail investors might not get as many shares as they like, they will pay the same price as institutional investors.

While the ability to bid via a smartphone, tablet, or desktop without broker assistance may seem revolutionary, the real breakthrough here is getting in on the offer price.  Retail investors who have taken the time to study the issue of IPO investing are aware some experts recommend retailers stay away.  Some cite a landmark study from US market expert Jeremy Siegel who studied IPO performance of close to 9,000 stocks that went public between 1968 and 2003, concluding that the IPO’s lagged behind the market by about two to three percent per year.  

What is often overlooked is the critical fact that the study used either the offer price or the price at the end of the first month of trading, confusing the results since the 30-day closing price could be and often is higher than offer price.  Studies citing stellar performance of IPO’s characteristically use the offer price, heretofore unavailable to most retail investors, to calculate returns.


The OnMarket auction platform allows retail investors for the first time the opportunity to truly get in on the ground floor.  The process is simple enough, allowing bidding following registration on the site, at no cost.  The site itself contains summaries of the most relevant issues contained in the formal, and much longer, IPO prospectus.  There is no shortage of “tips” on the Internet for what to look for in an IPO but all come down to the advice to “follow the money.”

Money is what IPO’s are all about.  Investors need to know who is selling and what will they be doing with the money raised from the IPO.  Current owners who take the money and run should cause alarm bells to go off.  If the company has a bright future, why are they abandoning it?  Ideally a significant portion of the proceeds should go towards growing the company.  How will the company make money?  From where will the money come?

Beyond addressing these questions the OnMarket website could be improved with direct links to the issuing company’s website and the full IPO prospectus.  Some market experts maintain the rigid criterion of never investing in and IPO that is not currently generating revenue.  To determine that, an OnMarket user must search elsewhere. 

However, this is a relatively simple matter.  The ASX website maintains a list of upcoming IPO’s that includes links to company websites where an investor can further research the IPO prospectus.  For some stocks the OnMarket website offers third-party research reports and interviews with company management.  

The following table highlights three investing opportunities available in the remaining weeks of October.


None of the companies are profitable as yet, with losses outpacing revenue gains, as operating expenses see significant increases in the early stages of company start-up. 

US-based HyGieaCare Inc. (HGC) has an FDA approved clinical procedure for colon cleansing called the HyGieaCare Prep System.  The procedure can be used to prepare patients for a colonoscopy procedure or to treat chronic constipation.  

The HyGieaCare Prep System is currently available at five clinics in the US with two more under development.  The business plan calls for the clinics to be independently operated by the company, or in joint venture arrangements with GI specialist groups where revenue generation comes from per procedure patient payment.  The company is also pursuing licensing agreements with hospitals where with revenue coming from annual and monthly licensing fees and fees for each procedure performed.

The colonoscopy prep procedure takes about one hour and is typically completed on the same day as a scheduled colonoscopy; a vast improvement over the traditional oral liquid overnight prepping.  The downside is the higher cost, but GI clinicians should be impressed with HyGieaCare’s impressive performance to date, with 97% of HyGieaCare prepped patients coming into the colonoscopy procedure with adequately prepared colons.  The company claims the U.S. Multi-Society Task Force on Colorectal Cancer (MSTF) in Optimizing Adequacy of Bowel Cleansing for Colonoscopy found pre-colonoscopy cleanliness rates between 75% and 80% following traditional oral liquid prepping.

The market for colonoscopies should increase with the aging baby boomers from the current annual figure of approximately 15 million procedures, with 14,000 practicing GI (Gastro-intestinal) physicians in the US.  Funds from the IPO will be used for development of new centres in the US as well as marketing campaigns and additional clinical studies.

As of now oral liquid prepping is the dominant method of preparation with HyGieaCare enjoying first mover advantage in providing a simpler and more efficient method.

UK-based Appetise Holdings (ATZ) provides an application available for takeaway and delivery restaurants to connect with customers.  The company’s website and mobile app lets customers browse local restaurants offering takeaway and delivery and then order and pay online.  Appetise collects a commission from the restaurants with no involvement in the food preparation or delivery, acting solely as a classic “middleman.”

The company has ambitious plans to take advantage of its low-cost operations to take on the competition in a market in the UK valued at more than $10 billion a year.  Appetise will eliminate a sign-up fee most competitors charge restaurants to get on the platform and offer commission charges of 10%, significantly lower than the 14% from major competitors.  Appetise also plans a competitive advantage with consumers, eliminating the fee for credit card use and including hygiene information for the restaurants on its site.

Although the company’s revenues seem to be going in the wrong direction, Appetise made the decision to focus on setting up apps and increasing the scalability of its website, and delay focusing on customer acquisition and marketing.  Funds from the IPO will go towards customer acquisition and marketing as well as to increase the company’s sales personnel and continued development of its website.

Registry Direct Limited (RD1) is a Software as a Service companies (SAAS) offering a cloud-based share registry platform for both publicly traded and private Australian companies and funds to maintain registers of securities issued, along with support activities.  A newcomer, the company began operating in 2014 with a proprietary platform designed specifically for mobile use. Competitors like Computershare (Limited (CPU) go where the big money is, with listed equites and funds.  Registry Direct has decided initially to focus on the underserved “public unlisted companies, proprietary companies, investment funds and employee share schemes”. 

IPO funds will be used to add features to the company’s software and to add sales and marketing staff to promote growth.  Revenue stems from two fees – one a monthly fee based on the client company’s total shareholder count and an additional fee for support services.  Registry sees itself with a first mover advantage in the unlisted market.  Traditionally engaging professional registry services has not been cost effective for the typically smaller unlisted entities.  The platform is a “self-service” system, enabling the cost efficiency.

Registry’s business plan calls for large scale adoption of its platform as well as expanding into New Zealand.  In addition, Registry will encourage lawyers, accountants, and other financial professionals to sell rebranded versions of Registry software to their respective customers. The company has an impressive track record to date of revenue generation, but start-up expenses have also increased more than 300%. 

Equity crowd funding is another entry in the growing list of disruptive financial technologies.  This is an innovative approach for start-up companies to raise money without going through the expenses and effort of a public listing.  Investors can buy an equity stake in these unlisted companies.  OnMarket has plans to add an equity crowdfunding platform to its operations.  Equity crowdfunding is new with enabling legislation passed here in Australia in 2017.  Prior to this approach, the ability to invest in promising companies in the very early stages of development was restricted to venture capitalists and high net worth investors. 
 

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week 14 December 2018
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