Ecoya IPO lights only one end of the candle

Ecoya Ltd [ECO.NZ] lists on the NZX this morning, Monday May 3 2010, but it begins its public life with an underwhelming IPO that only just lit one end of a scented candle.

There was NZ$10.1 million raised out of a possible $13 million (if you include over-subscriptions) with 2.5 million shares allocated to insiders topping up the money raised.

The economy isn't exactly firing at the moment so it could be that overall negative feeling having an effect on capital raising.

Having said that, in the thick of stockmarket and economic turmoil in 2009 many capital raisings were done by NZX listed firms and most if not all were well sort after and heavily oversubscribed so it proves where quality and stability of earnings is on the positive side of the ledger there is an appetite for investors to plunk down money.

There has been a dearth of high quality IPOs for many a year on the NZX, and in the absence of Fonterra or some of the taxpayer owned electricity companies listing, the future for investing in public companies looks a little bleak.

Don't get me wrong there is room for the riskier investment proposition that Ecoya is, but everyday investors in the stockmarket like myself want to see good medium to large companies coming to market with a proven track record, good balance sheet, a good economic advantage and reasonable future prospects.

The market has proven that Ecoya is not one of those companies thus far and it will be interesting to see market reaction this morning at 10.00am when selling of Ecoya shares goes live.

I am betting a southerly move in shareprice based on my negative outlook for the company and a severe correction in the DOW last Friday.

The IPO price was NZ $1 with two warrants per share.

NB: First bids up this morning at 10.15am is one for 83, one for 45c and one for 25c and sellers at $1 - $1.15. No trades have yet passed.







Ecoya Ltd @ Share Investor

Ecoya IPO: A Closer Look
Ecoya Prospectus Requires free registration
Ecoya.co.nz

Discuss ECO @ Share Investor Forum


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From Fishpond.co.nz



Buy Every Bastard Says No - The 42 Below Story, by Geoff Ross & Justine Troy & more @ Fishpond.co.nz




c Share Investor 2010

Ecoya IPO: A Closer Look

It is great to have promising new companies joining the NZX and while the IPO of Ecoya Ltd [ECO.NZ] is promising it is pitched at the riskier end of the investing scale.

The valuation of the company also looks overenthusiastic on the part of the current Ecoya Owners.

With pro-forma revenue of around NZ$2.5 million for the year ended 31 March 2010 and projected income of around $3.9 million for 2010 (of itself a massive leap in sales and not comparable with any prior year because of pro-forma figures) the valuation of the IPO is $13 million. This figure is comprised of 10 million ordinary shares at $1 and a facility to offer over-subscriptions of 3 million shares.

The valuation is then inflated by the existence of 33 million further shares held by the current owners who were allocated them through various trades and sales within the Ecoya company, associated directors, family trusts and "The Bakery", an investment vehicle through which Ecoya has been operated and funded pre-IPO and an an entity which will receive substantial annual payments from Ecoya for "management expertise". There was mention in the prospectus that the 33 million shares were issued to The Bakery for "shareholder advances" made to Ecoya over the last 2 years but it looks like the total allocation was made for an investment of around $4 million.

A NZ$46 million valuation for a company with slightly more than $3.9 million in current revenue (and a more than $2 million loss) is cheeky to say the least.

The proceeds from the IPO are going to be used to expand the business, hire more staff, pay off a $1 million loan , $ 1.2 million in IPO costs, and provide nearly $800,000 in interest-free loans for directors to buy shares in Ecoya. This is explained as an "incentive" for these directors - nice work if you can get it.

Ecoya is going to operate in a sector that has many competitors, large and small, start-ups and established players and therefore has little competitive advantage. Its place in the body and bath and home fragrance business is apparently going to achieve the prospectus' aggressive stated sales growth by branding and marketing the company in the high end of this sector.

Whether this is achievable is of course a moot point but this is not a long-term investment for those interested in the IPO. The company was founded and is to be floated with the express purpose of eventually finding a buyer down the track sometime.

The Ecoya model is based on the reasonably successful float and eventual sale of 42 Below to Bacardi several years ago.

This IPO is for investors with a high risk profile, along the lines of the aforementioned 42 Below and the company Burger Fuel Worldwide [BFW.NZ] whose IPO was in June 2007.

I will not be touching it but good luck to you if you do.


Ecoya @ Share Investor

Ecoya IPO lights only one end of the candle
Ecoya Prospectus Requires free registration
Ecoya.co.nz

Discuss ECO @ Share Investor Forum


From Fishpond.co.nz



Buy Every Bastard Says No - The 42 Below Story, by Geoff Ross & Justine Troy & more @ Fishpond.co.nz




c Share Investor 2010