Opening prices of the 23 March 2007 IPOs were 40.7% above the offering prices on average compared with 39.7% for the 20 IPOs in February 2007. Both figures are well below the average of 76.8% for all 188 IPOs in 2006. For the 43 February and March IPOs, the closing prices on March 30 were an average of 36% above the offering prices, slightly below the average opening price premium. Sixteen companies had market prices below their offering prices. Obviously, we are still witnessing the poor IPO secondary market supply-demand dynamics that began in 2006.
Despite the unfavorable market conditions, market prices at four of the March 2007 IPOs are more than twice as high as the offering prices. The first is Ecash (3840), which listed on TSE Mothers on March 12. Ecash offers services involving verification and authentication using radio frequency identification (RFID) devices like IC cards and IC tags. The second is NextGen (3842), which listed on OSE Hercules on March 14. NextGen is a network engineering company that develops, sells and maintains software for next-generation networks. The third is AIT (9381), which listed on TSE Mothers on March 15. This company conducts an international cargo transport business linking Japan with China and other Asian countries. The fourth is I-FREEK (3845), a mobile content company that listed on OSE Hercules on March 19. Three of these four companies are in the IT sector, demonstrating the attention this category draws from investors because of the growth potential.
My next topic concerns valuations of IPO offering prices. As I noted earlier, the market prices of 16 of the 43 IPOs thus far in 2007 were below their offering prices at the end of March. Even so, securities companies appear to be setting offering prices at relatively low levels. During the first half of 2006, most offering prices were higher than the IPO prospectus projected price. Since July, however, a majority of the IPOs ended up with offering prices below the projected price. Looking at the 43 IPOs thus far in 2007, 15 had an offering price above the projected price and eight had a lower offering price. This reflects differences in the strengths of individual issues. I believe this trend indicates that lead underwriters have adopted a more cautious stance. Underwriters are now determining offering prices while paying close attention to prices on secondary markets.
In April, 13 companies are planning an IPO. In April 2006, the Nikkei Average reached its peak for the entire year and then started a long downturn. There were 20 IPOs during the month and their average opening prices were 196% above the offering prices. Typically, there are very few IPOs in May because of the Golden Week holiday. Supply-demand dynamics tend to improve because of the small supply of IPOs, just as at the end of each year. Consequently, IPO opening prices in May are often much higher than the offering prices, but prices subsequently decline in most cases. Investors fortunate enough to purchase an April IPO stock at the offering price should lock in a profit by selling at this level. My advice is different for investments in IPOs that have a high opening price. In this case, investors are best advised to wait at least one month, and maybe even about three months from a conservative standpoint, after the IPO before making an investment. Investors who wait for the first post-IPO earnings announcement will probably still be in time to earn an attractive capital gain.
