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ASX listing - how to get value

Background 

  • Many listed companies don’t receive the proper value for the cost of being listed (between $500k and $1m per annum, plus management time and focus)
  • Many listed companies are too small to attract interest from investors and intermediaries unless they promote themselves actively
  • These companies need an active plan to effectively promote themselves if they’re to get value from their listing

 Why do companies list on ASX

  • To achieve a reasonable market price for their shares
  • To get access to new capital
  • To use listed shares to acquire other businesses
  • To allow existing shareholders  (e.g. founders) to sell
  • For the prospect of being taken over

These objectives are ongoing rather than being finite outcomes or goals. However many listed companies don’t achieve them and more importantly don’t have an active and realistic plan to pursue them.

The keys to getting value for your listing

There are two main requirements for a company to get value from its ASX listing:

1. Company prospects and performance

The company must have a story to tell to investors about its future prospects that investors find attractive.  Of course there are many investors with different investment criteria so it’s not necessary to attract them all.  But investors in small and mid-sized listed companies are usually looking for a credible high-growth story.

Value from listing will not be achieved unless there is an attractive investment story to promote to investors.

2. Market liquidity

Market liquidity is the holy grail of ASX listing but many listed companies have illiquid markets for their shares.  Market liquidity essentially means that at any time there is a reasonable number of both buyers and sellers of the company’s shares and that over any given period there is a reasonable volume of trades.

Liquidity offers the following outcomes which are the lifeblood of a successful listing:

  • Buyers are able to buy – there are enough shares being traded that an investor wanting to buy shares in a particular company is able to buy as many as he wants (many buyers will choose to buy none if they can’t get enough)
  • Shareholders are able to sell – this is not only important for existing shareholders, it can be a vitally important for prospective new investors that they believe they’ll be able to sell when they want to
  • The share price is a meaningful reflection of the company’s true value – this is a direct consequence of a liquid market, though it doesn’t mean that everyone agrees with the market price!

Raising new capital becomes feasible and attractive for companies when there is a liquid market – investors are more likely to want to acquire shares and the market price will be a fair reflection of value. Existing shareholders are able to sell their shares into the market at a fair price and there is always the prospect of attracting a takeover at a premium price.

Of course ultimately it is company performance and the perceptions of investors about future prospects that should drive achievement of the goals outlined above.  However even if a listed company performs well, it is very difficult to get value from an ASX listing if the market for its shares is illiquid.

The key steps to getting value for your ASX listing

Assess viability of being listed

In the first instance it is essential to understand the company’s prospects and plans as well as the reasons it is listed.  This “investment story” must be one that will be attractive to experienced investors. If the investment story isn’t sufficiently attractive then it must be revised or maybe privatization should be considered. Revision of the story might include for example an acquisition or merger which significantly changes the company’s prospects.

Develop a Capital Markets Plan

Even with an attractive investment story a comprehensive plan is an essential element to achieve value from a listing. Such a plan will be a continual work in progress and be constantly refined and developed – there is no end game to effectively promoting a listed company to investors.

This plan will usually include in the first instance:

  • Identifying any structural barriers to liquidity – for example, and quite commonly, if a substantial proportion of the company’s shares is held by long term holders then the shares available to trade (the “free float”) is small and liquidity will be harder to achieve
  • Developing and refining the company’s pitch to investors – the company must be able to pitch its “investment story” effectively to investors.
  • Identifying the company’s capital markets priorities, for example is there a need to raise new capital in the short term or can the initial plan be executed over time.
  • Identifying the target investor market (s) – while it is a generalization, there are several broad group of investor types who typically have different investment criteria.  For example there is little point pitching the story to institutional investors when the company is just too small (but it happens all the time!)
  • Identify the best way to reach the target investor group (s) – this might be for example stockbrokers, financial planners or the financial press

The plan will also include, though this may come later, consideration of such things as ongoing shareholder communications. Also as mentioned above structural changes to the register may be necessary in some cases to achieve an adequate free float.

Execute the plan

This will involve a significant time commitment by the company’s CEO and CFO, though the engagement of qualified advisors can significantly reduce the time required an increase the effectiveness of the program.

It must be an ongoing process which involves developing relationships with selected intermediaries and investors and will involve all or some of:

  • Presenting the investment story to selected intermediaries (brokers, financial planners, etc) and investors
  • Presenting to selected financial journalists
  • Dealing with brokers and fund managers  who wish to learn more about the company

If the company needs to raise new capital at some stage, the work undertaken previously in promoting the company to investors will make the raising much easier to complete.  This will also apply to a large sell-down by an existing investor or any other capital markets transaction. These transactions will often introduce new investors to the company’s register and therefore further improve liquidity.

Of course many investors and intermediaries (who are advisors to investors) are conflicted – their objectives are purely to profit from investing in the company and this may not always coincide entirely with the company’s objectives.  Ongoing involvement on the company’s behalf of a truly experienced and independent advisor who has deep relationships in the financial markets can be invaluable.

How Federation Capital can assist you

Federation Capital’s principals have extensive experience of working with listed companies to maximize the value of their ASX listing.  We are completely independent and will work with you as an advisor to ensure an effective interaction between you and the market.

Our Capital Markets Advisory services include:

  • Reviewing your current investment pitch and providing expert advice on its likely appeal to investors
  • Reviewing your existing capital markets activities and providing advice on their efficiency and effectiveness
  • Developing a comprehensive, efficient and effective capital markets plan for your company
  • Working with you over time to execute the plan
  • Advising you on any capital raisings or other capital markets transactions

Need Advice?

To arrange a confidential,  no-obligation discussion, please contact us on:

+61 2 8386 3206 or info@fedcap.com.au

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