NEW YORK (CBS.MW) — Rising oil and commodities prices propelled energy companies to the top of the list of best-performing initial public offerings in the first half of this year, helping them outpace a bevy of biotech, financial and technology IPOs.
But the market is expected to shift into a higher gear in the second half, with household names like Domino’s Pizza, Morningstar and Google debuting their shares in what analysts now expect to be the first good year in four for the long-dormant IPO industry.
“The IPO calendar has increased significantly,” said Stuart Francis, vice chairman at Lehman Bros.
“There’s pent-up demand because the IPO market really took 18 months off. And you have a pretty solid economic recovery with good GDP growth, and that implies even better technology growth.”
Globally, 419 IPOs debuted in the first half of the year, with proceeds of $41 billion, more than twice the year-ago figure of 194 deals raising $6.2 billion, according to Dealogic.
The biggest success story so far has been CrossTex Energy
whose 116 percent jump in stock price since its debut in January landed it at the top of the 71-member IPO class in the first half. Solar-power-equipment maker Daystar Technologies
rang up the worst performance with a loss of 48 percent for its shares.
See best and worst performers
2004’s first-half winners, losers
The energy sector sparkled in the first half of the year, as the U.S. and global economic recoveries, plus uncertainty over the security of supply, drove crude-oil prices to record levels.
The gain in CrossTex Energy shares edged out a 106 percent rise from Jed Oil
for the top spot, according to Thomson Financial.
Shares of Crosstex Energy represent an ownership interest in master limited partnership Crosstex Energy L.P.
a natural-gas processor and distributor that went public in 2002.
Jed Oil punched in as a featherweight IPO at $9.3 million as an oil exploration and development firm focused on western Canada. The stock doubled early after its debut and has held onto its gains.
Drug firm Eyetech Pharmaceuticals
took a close third with a 105 percent rise, followed by a jump of 75 percent from the more recent IPO of Internet jewelry seller Blue Nile
rounded out the top five with a rise of 68 percent as one of many offerings from the financial sector.
But there were losers, too.
the No. 2 decliner after Daystar, is down 42 percent from its $12-per-share debut on Feb. 5.
Rounding out the top five decliners were Xcyte Therapies
off 34 percent; TRW Automotive
down 29 percent; and Semiconductor Manufacturing International
down 31 percent.
With proceeds of $2.8 billion, Genworth
a spinoff of most of General Electric’s
insurance businesses, ranked as the biggest IPO in the first half in terms of dollar value. It had a disappointing open last month but is now trading above its offer price of $19.50 a share, closing Friday at $19.95.
IPO rebound expected to continue
The rebound in IPOs is widely expected to continue in the second half of the year, but no specific type of IPO is dominating the top ranks of the new-issues calendar.
“The IPO market is a mix today — some of them are working and some aren’t,” said Dan Burstein, a venture capitalist and founder of Millennium Partners.
Lehman’s Francis said the investment bank counts 25 IPOs in its pipeline, including a “broad based” roster of technology firms from the software, information technology services, communications equipment and semiconductor sectors.
As 2004 plays out, IPOs will face the same jitters as the overall market over oil prices and interest rates, but Francis is optimistic that growth will continue.
“The market has to absorb the handoff in Iraq and the consensus that interest rates are going higher,” he said, but even with higher interest rates, this year’s IPO market is preferable to last year, when rates were lower, but economic activity was stalled.
Anticipation continues to build around the Google.com deal, slated to raise about $2.7 billion, as the largest Internet IPO to date takes its place as a Fortune 500 caliber company. See full story.
“That’s going to be a huge flagship IPO,” said Millennium’s Burnstein. “It has ignited the ambitions and passions of venture capitalists everywhere by reminding them it is possible to hit out-of-the-park home runs.”
With its ubiquitous brand name, Google ranks as the most widely known IPO in a market of mostly unknown newcomers from the financial, biotech and tech sectors.
It’s also leading a revival of bottom-line oriented dot-com IPOs. See full story.
More brand name IPOs are on their way, however, from Domino’s Pizza, heath supplement and vitamin retailer GNC, mutual fund rating firm Morningstar and electronic stock exchange Archipelago. See full story.
Cash is king
The only common denominator among this year’s crop appears to be net income.
After being burned by scores of so-called dot-bombs — tech companies with little or no revenue or profit that went public during the Internet boom — only to quickly go bust when the music stopped in 2000, current IPO investors are demanding profitability in companies going public
If a company is losing money as it goes public, or even if it fails to excite investors — such as the recent Genworth deal — it had better be ready to cut its price. See full story.
Money manager Ben Holmes of Morningnotes.com said companies wait to go public nowadays until right around the time they turn the corner on profitability.
Among the coming crop of IPOs, Holmes is eying shares of Displaytech, a maker of micro displays used as electronic viewfinders.
Holmes says he’s watching for more Chinese tech firms such as online gaming company Shanda
which has shrugged off a cloud hanging over peers such as Tom Online
“In the second half of the year we’re looking at a nice, fat calendar,” Holmes said. “There’s a lot of backlog and there will a lot of interesting deals.”
Outside of the tech sector, Holmes is interested in shares of CB Richard Ellis Group, a Los Angeles-based real estate investment trust that awaits its stock market debut.
IPO watchers predict that IPOs will remain healthy as long as interest rates stay reasonable close to current levels. Although rates are expected to edge up, they’ll at least stay close to their historic lows for the rest of the year, analysts said.
View more information: https://www.marketwatch.com/story/best-and-worst-ipos-of-2004-and-whats-to-come