Recent volatility no reason to shun new listings

Recent market volatility should not derail investor demand for shares in quality companies seeking an AltX listing, says BJM Private Client Services.

The specialist wealth manager and stock broker with focus on high net worth individuals says it will continue its listings assessment service for clients and foresees no dramatic reduction in investor subscriptions to private share placements, given fair and reasonable prices.

By mid-August, the JSE had retreated more than 10% from its record high on July 13, but the small cap sector and small cap funds with exposure to both the JSE and the AltX had proved relatively resilient.

BJM PCS says a limited retreat by small caps is an indication that overall prospects remain positive for many of these companies and suggests that the market does not anticipate a repetition of the small cap crash of 2001-02.

Hobs Mpho Mojalefa, head of dealing at BJM PCS, comments: "Experience during the recent bout of market weakness underlines key differences with the last major correction five years ago and highlights significant improvements in the quality of newly listed companies.

"The quality of companies brought to market in the listings boom of the late '90s was often suspect. Over the last 18 months we've seen a new spate of listings. As part of our service to clients, our asset management division scrutinise the track-record, the quality of the business models and the management teams.

"We will continue to monitor listings activity and will continue to apply for shares when we and our clients see value."

BJM PCS listed four key differences between the last listings boom and the present one:

1.  Stock exchange listing requirements are now more stringent, with the accent on improved reporting and more sustainable business models

2.  The AltX, launched by the JSE in 2003, has created a credible environment for small and medium size companies looking for capital for expansion

3.  Companies now prefer a private placement of a pre-determined block of shares rather than initial public offerings on the open market

4.  Private placement to serious investors reduces the incidence of 'stagging' (buying at the offer price and selling at a profit once trading starts), a practice that helped to fuel speculation during the 1990s IPO boom without enough attention being given to the overall value on offer.

Mojalefa says almost all offers of shares for private placement in recent months have been substantially oversubscribed, sometimes by up to 30 times.

He adds: "The recent bout of market volatility and equity jitters may reduce the level of demand somewhat, but as long as the underlying quality remains good we believe new listings activity will continue and clients will remain quite receptive.

"This is good news for the economy as many of these new listings have a role to play as contributors to national growth and job creation."