Hopeton Morrison, Contributor 
Chris Berry, Chairman of Mayberry Investments
MAYBERRY INVESTMENTS Ltd. came to the market last week with its Initial Public Offering (IPO). This follows on similar IPOs from three other financial institutions, JMMB, DB&G and Capital & Credit in recent times. There is considerable interest in this IPO, notwithstanding the rather high minimum offer of $50,000. In that context, we focus this week on some basics about investing in an IPO.
An initial public offering is loosely defined as the first sale of a company's stock to 'outside investors'. Outside because most businesses start off being privately owned as in the case of the companies listed above.
EXTREME DUE DILIGENCE
Any kind of investment whether in fixed income, real estate, equities, art or some other, requires extreme due diligence. You are putting your hard earned money on the line here. Do your homework. But bear in mind that an IPO is not for all investors and there are good reasons for this.
Decide what it is that you are seeking from an investment. It must be more than merely following the 'herd'. There is no doubt that Mayberry's listing at this time is good for our local market. In fact, the industry is impatient of at least another 10 companies coming to the market soon to give the breadth and depth needed to the JSE. But especially now that the market has been flat over the past six or so weeks, there are also a number of excellent value stocks already available depending of course on your investment focus. In discussions with a couple of brokers last week, five stocks kept coming to us as good values at this time: Pan Jam; Grace; Lascelles; Kingston Wharves and Carreras (although opinions were divided here, this last one acknowledged as a good income stock).
Essentially, an investor seeks one of income, capital gains in the short term, or long-term growth from a particular stock. If income, the investor must appraise himself of the company's profit trends, potential and especially its dividend policy. On the other hand, some investors are only seeking capital gains in the short term (that is a sharp appreciation in the price of the stock). If you fall into this category, look at the prevailing market conditions. Is it likely that the market will move Mayberry's IPO upwards in the same way that JMMB, DB&G and Capital & Credit all experienced massive capital gains in a relatively short time?
GROWTH POTENTIAL
If you are in for long-term growth, then you need to evaluate a company's historical earnings and growth potential. Has the company shown a propensity to reinvest earnings into further expansion? The 'Retained Earnings' component of the company's Balance Sheet is quite instructive here. To minimise the risk of investment in an IPO, ensure that you understand what the company that you are about to invest in really does.
Investing in an IPO requires more than following a hunch, or on the basis of some casual conversation with armchair experts. Get advice from the professionals. The prospectus which accompanies all IPOs carries everything that you need to know about a company.
Hopeton Morrison is general manager of St. Thomas Cooperative Credit Union Ltd. hmorrison@stccu.com
