Managing Finance (FINA6000): IPOs, Performance, and Underpricing

This report provides a comprehensive analysis of initial public offerings (IPOs) in the Australian market, focusing on key aspects such as the purpose of funds raised, changes in the cost of equity post-IPO, and the influence of underpricing. The analysis includes a comparison of Australian IPO activity with the broader Australian market, examining share price performance both with and without dividends over a five-year period. The report evaluates the considerations organizations take when conducting IPOs, using data from company prospectuses, and assesses the impact of IPOs on firm performance. The report also delves into the concept of underpricing in IPOs and the role of the capital market in influencing IPO activities. The study covers three specific IPOs: Hotel Property Investments, Virtus Health, and Nine Entertainment Corporation. The report concludes by summarizing the significance of IPOs and their impact on companies' ability to secure funds for growth, with a detailed look at the returns generated by the selected IPOs.

Running head: MANAGING FINANCE
Managing Finance
Name of the Student:
Name of the University:
Authors Note:

MANAGING FINANCE
1
Table of Contents
Introduction:...............................................................................................................................2
a. Understanding the considerations that were taken by the organisation while conducting the
initial public offerings:...............................................................................................................2
b. Depicting the change in the cost of equity of the company after the initial public offerings:
....................................................................................................................................................3
c. Detecting whether IPO is influenced by the under-pricing that is present in a capital
market:........................................................................................................................................4
d. Comparing the Australian IPO activity with the Australian Market:....................................5
e. Share price performance of the IPO without dividends for last 5 years:...............................6
f. Share price performance of the IPO with dividends for last 5 years:.....................................8
Conclusion:..............................................................................................................................10
References and Bibliography:..................................................................................................11

MANAGING FINANCE
2
Introduction:
Australia is a thriving nation where companies are relatively conducting initial public
offerings for gathering all the relevant capital to increase their cash balance and support
future endeavors. The actions that are taken by the organizations together the relevant
funding for their operations are IPOs that are conducted by underwriter in the capital market.
Australia has one of the biggest stock market in the world, which allows international
investors to increase their exposure in the market and select investments that has low risk and
high returns. The report directly evaluates the significance of IPOs that is conducted in the
capital market by organizations while detecting the relevant purpose for such fund the
analysis also allows the organization to determine the changes in its equity cost. The analysis
on the overall initial public offering activities in Australia is conducted on 10 years to
understand the link between the capital market and the IPOs that were conducted during the
period. Further analysis is provided on the overall return generation capabilities of the IPOs
that were conducted in 2013.
a. Understanding the considerations that were taken by the organisation while
conducting the initial public offerings:
Company Purpose of the Fund
Hotel Property Investments
The main purpose of the fund was to achieve relevant
listing on the basics market and adequately access the
liquid capital market of Australian securities. Moreover, it
would also allow the Hotel Property Investment
organization to benefit from the increased profile and
transparency, which increases from the listing of an entity
in the capital market. Furthermore, it would allow the
organization to access the capital market and improve
capital management flexibility to its operations, which
would eventually allow the investors to understand the
operations of the organization.
Virtus Health
The management's main purpose for the share issues what
to adequately raise the funds for supporting the overall

MANAGING FINANCE
3
repayment of debt, which needs to be conducted to the
existing shareholders. Furthermore, the additional
flexibility would eventually allow the organization to
pursue growth opportunities and improve the level of
capital market access. Furthermore the analysis indicates
that liquid market in the shares would revolt we allow the
organization to grasp relevant opportunities to improve
which operations in the long run.
Nine Entertainment Corporation
The main aim of the Nine Entertainment Corporation is to
provide a liquid market for its Shares and an opportunity
for Existing Shareholders. The company also intends to
pay off its existing debts, while providing additional
financial flexibility to pursue the growth strategy.
Furthermore, it helps in increasing cash and cash
equivalents, payment of the costs associated, and payment
to SaleCo shareholders.
b. Depicting the change in the cost of equity of the company after the initial public
offerings:
Hotel Property
Investments 2014
Virtus
Health 2014
Nine Entertainment
Corporation
201
4
Rate 12.5% Rate
13.5
% Rate
11.2
%
Close price 2.02 Close price 6.45 Close price 2.2
New dividends 0.088
New
dividends 0.12 New dividends
0.04
2
Equity cost 16.9% Equity cost
15.36
% Equity cost
13.1
%
The cost of equity is a relatively depicted in the above table for each of the IPS that is
analyzed in the report. However, the cost of equity is relatively derived for the period of 2014
after one year of the operation that was conducted by the organizations conducting IPO is
used in 2013. The calculations that is used for deriving the cost of equity relatively needs
adequate data, which was not provided before the initial public offerings conducted by the
organizations (Yung & Nafar, 2017). Hence, the improvement in the overall cost of equity
directly indicates the level of changes that is required by the management to support future

MANAGING FINANCE
4
project acceptance. The analysis identifies the equity cost for Hotel Property Investments is at
16.9%, while Virtues Health cost of equity is at 15.36% and Nine Entertainment Corporation
is at 13.1%. Hence, investors are able to understand the composing the capital that is used by
the company after utilizing the WACC calculations, which comprises of both debt capital and
equity cost. Clementi & Palazzo (2019) indicated that companies after deriving the
calculation of their cost rate are able to discount the projects for understanding the financial
performance of the projects selected for investments.
c. Detecting whether IPO is influenced by the under-pricing that is present in a capital
market:
The changes in the overall return of the organizations on the first day of trade are
relatively defected in the above table. This analysis directly helps in understanding the impact
of underpricing within the IPOs that is conducted in the capital market. During the initial
public offerings, underpricing measures are taken by investors to reduce the level of prices
for a particular share to help generate high level of returns in the long run. The discounted
price needs to be offered by the organization, which allows the investors to maximize the
level of returns in the first day of trade. Henceforward, the proof of underpricing can be seen
in the above IPOs that were conducted during 2013. Out of three IPOs, two of the IPOs
resulted in negative returns, which indicate that the overall pricing of the stocks word used on
the first day of trade to benefit the investors (Eckhardt, Junkunc, & Li, 2018). The initial

MANAGING FINANCE
5
public offering is infected by the underpricing method with benefits both the organization and
the investors in the long run.
d. Comparing the Australian IPO activity with the Australian Market:
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
-100.00%
-50.00%
0.00%
50.00%
100.00%
150.00%
Australian IPO Activity
Initial public offerings in Australia are relatively conducted each year, as companies
in 10 to gather relevant funds from the capital market to support its operations and future
growth. The above figure directly provides information regarding overall activities that is
conducted in Australia for the period of 10 years. This information is a relatively compared
with the overall capital market conditions of Australia during the same period, which helps in
analyzing the relationship between the IPOs and the capital market. This analysis would
eventually help in depicting that there is a positive relationship between the IP activity and
the Australian market. The companies only intend to conduct their IP used when the capital
market is booming and providing a high level of returns to the investors. During this period
the organizations are able to acquire the required funds and reduce the underpricing of the
shares and get adequate value for their share issue (Clementi & Palazzo, 2019).

MANAGING FINANCE
6
e. Share price performance of the IPO without dividends for last 5 years:
Return without dividends
Date
All Ordinary
Index
Hotel Property
Investments
Virtus
Health
Nine Entertainment
Corporation
01-06-2013 1.78% 10.23%
01-07-2013 1.80% 4.78%
01-08-2013 3.88% 10.60%
01-09-2013 -1.96% 0.73%
01-10-2013 0.73% 6.02%
01-11-2013 -2.76% -0.68%
01-12-2013 4.04% 0.00% -4.92% 4.09%
01-01-2014 -0.23% -1.49% -5.66% 2.18%
01-02-2014 1.25% 0.00% -7.14% 0.00%
01-03-2014 0.05% 3.52% 1.92% -5.56%
01-04-2014 -1.68% -0.49% 11.32% -2.26%
01-05-2014 4.48% 0.00% -1.21% -0.46%
01-06-2014 0.03% 1.95% -3.80% -4.19%
01-07-2014 -5.83% 9.09% -0.64% -0.97%
01-08-2014 3.93% 0.44% -0.38% 0.98%
01-09-2014 -3.76% 4.37% -4.12% -2.43%
01-10-2014 1.71% 1.67% -6.31% -4.98%
01-11-2014 3.02% 7.41% 12.46% -7.33%
01-12-2014 6.25% 1.15% 2.29% 15.82%
01-01-2015 -0.62% -2.27% -2.24% 2.93%
01-02-2015 -1.50% 6.98% -6.62% 9.95%
01-03-2015 0.02% -2.17% 4.23% -7.33%
01-04-2015 -5.61% -4.07% 1.57% -27.91%
01-05-2015 4.23% -0.77% -30.80% -1.29%
01-06-2015 -8.09% 2.33% 0.00% 8.50%
01-07-2015 -3.13% -1.14% -4.10% -5.42%
01-08-2015 4.55% -1.15% 5.44% -1.27%
01-09-2015 -1.33% 0.00% 16.21% 7.10%
01-10-2015 2.42% 1.56% 2.69% 14.76%
01-11-2015 -5.39% 1.92% 0.31% -13.39%
01-12-2015 -2.15% -1.50% -2.62% -9.39%
01-01-2016 4.12% -3.44% -5.06% 4.35%
01-02-2016 3.19% 9.09% 4.16% -27.56%
01-03-2016 2.48% -0.36% 7.99% 7.52%
01-04-2016 -2.52% 13.45% 4.88% -13.58%
01-05-2016 6.28% -0.32% -3.10% 4.29%
01-06-2016 -2.03% -0.32% 12.52% -8.68%
01-07-2016 -0.08% 0.65% 5.30% 5.50%
01-08-2016 -2.22% -3.85% -5.41% -18.48%

MANAGING FINANCE
7
01-09-2016 1.85% -6.00% -9.48% 7.56%
01-10-2016 3.94% -4.61% -17.36% 15.14%
01-11-2016 -0.77% 5.58% 8.33% -6.57%
01-12-2016 1.52% -1.41% -18.11% 5.53%
6/1/2013
8/1/2013
10/1/2013
12/1/2013
2/1/2014
4/1/2014
6/1/2014
8/1/2014
10/1/2014
12/1/2014
2/1/2015
4/1/2015
6/1/2015
8/1/2015
10/1/2015
12/1/2015
2/1/2016
4/1/2016
6/1/2016
-40.00%
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
Return without dividends
All Ordinary Index Hotel Property Investments
Virtus Health Nine Entertainment Corporation
The share price trend of the three IPOs is depicted in the above figure line table,
which helps in understanding that the returns generation capability of the organizations are
relatively higher in comparison to the Australian market. Consequently, it could be
understood that the overall Australian market was relatively able to generate or turn of 0.3%
during the period of 3 years. The IPOs were providing returns from 0.97% to -1.43%, as the
market volatility and performance of the company tends to curb their share price. Hence, the
information provided in the above figures directly indicates that the return generation
capability of the initial public offerings is relatively limited to the operations of the
organization. Therefore, the companies like Hotel Property Investments were providing the
highest level of returns while Nine Entertainment Corporation provided the lowest returns
from investment (Finance.yahoo.com, 2019).

MANAGING FINANCE
8
f. Share price performance of the IPO with dividends for last 5 years:
Return with dividends
Date
All Ordinary
Index
Hotel Property
Investments
Virtus
Health
Nine Entertainment
Corporation
01-07-2013 1.78% 10.23%
01-08-2013 1.80% 4.78%
01-09-2013 3.88% 10.60%
01-10-2013 -1.96% 0.73%
01-11-2013 0.73% 6.02%
01-12-2013 -2.76% -0.68%
01-01-2014 4.04% 0.00% -4.92% 4.09%
01-02-2014 -0.23% -1.49% -4.21% 2.18%
01-03-2014 1.25% 0.00% -7.14% 0.00%
01-04-2014 0.05% 3.52% 1.92% -5.56%
01-05-2014 -1.68% 3.79% 11.32% -2.26%
01-06-2014 4.48% 0.00% -1.21% -0.46%
01-07-2014 0.03% 1.95% -3.80% -4.19%
01-08-2014 -5.83% 9.09% 1.15% 1.07%
01-09-2014 3.93% 0.44% -0.38% 0.98%
01-10-2014 -3.76% 4.37% -4.12% -2.43%
01-11-2014 1.71% 4.98% -6.31% -4.98%
01-12-2014 3.02% 7.41% 12.46% -7.33%
01-01-2015 6.25% 1.15% 2.29% 15.82%
01-02-2015 -0.62% -2.27% -0.62% 4.98%
01-03-2015 -1.50% 6.98% -6.62% 9.95%
01-04-2015 0.02% -2.17% 4.23% -7.33%
01-05-2015 -5.61% -0.96% 1.57% -27.91%
01-06-2015 4.23% -0.77% -30.80% -1.29%
01-07-2015 -8.09% 2.33% 0.00% 8.50%
01-08-2015 -3.13% -1.14% -1.49% -2.41%
01-09-2015 4.55% -1.15% 5.44% -1.27%
01-10-2015 -1.33% 0.00% 16.21% 7.10%
01-11-2015 2.42% 5.06% 2.69% 14.76%
01-12-2015 -5.39% 1.92% 0.31% -13.39%
01-01-2016 -2.15% -1.50% -2.62% -9.39%
01-02-2016 4.12% -3.44% -2.84% 9.70%
01-03-2016 3.19% 9.09% 4.16% -27.56%
01-04-2016 2.48% -0.36% 7.99% 7.52%
01-05-2016 -2.52% 16.84% 4.88% -13.58%
01-06-2016 6.28% -0.32% -3.10% 4.29%
01-07-2016 -2.03% -0.32% 12.52% -8.68%
01-08-2016 -0.08% 0.65% 7.24% 9.50%
01-09-2016 -2.22% -3.85% -5.41% -18.48%

MANAGING FINANCE
9
01-10-2016 1.85% -6.00% -9.48% 7.56%
01-11-2016 3.94% 3.26% -17.36% 15.14%
01-12-2016 -0.77% 5.58% 8.33% -6.57%
01-01-2017 1.52% -1.41% -18.11% 5.53%
6/1/2013
8/1/2013
10/1/2013
12/1/2013
2/1/2014
4/1/2014
6/1/2014
8/1/2014
10/1/2014
12/1/2014
2/1/2015
4/1/2015
6/1/2015
8/1/2015
10/1/2015
12/1/2015
2/1/2016
4/1/2016
6/1/2016
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
Return with dividends
Hotel Property Investments Virtus Health
Nine Entertainment Corporation
All Ordinary
Index
Hotel Property
Investments
Virtus
Health
Nine Entertainment
Corporation
Return without
dividends 0.37% 0.97% -0.13% -1.43%
Return with
dividends 0.37% 1.65% 0.14% -0.98%
However, the returns that represents the income that is added with the dividend by the
organization during the period of 3 years. This mainly helps in detecting the actual returns
that is provided by the organization to the investors after the initial public offering. The
analysis, it is detected that the returns that was provided by Hotel Property Investments was
at the levels of 1.65%, while Virtus Health was providing a return of 0.14% and Nine
Entertainment Corporation was providing -0.98% (Finance.yahoo.com, 2019). Therefore, the

MANAGING FINANCE
10
returns of the organizations it directly increased due to the addition of the diffidence however
nine entertainment corporation was still providing negative returns to the investors which
indicate that investors need to evaluate before opting for initial public offering and increasing
the exposure of their portfolio to new risk conditions.
Conclusion:
The assessment directly helps in understanding the overall significance of initial
public offerings that is conducted by organizations for gathering relevant funds to support
and fuel their growth. The report has provided adequate information regarding the IP use of
three organizations Virtus Health, Nine Entertainment Corporation and Hotel Property
Investments. The analysis has directly indicated that the organizations conducting IPO used
are able to gather adequate level of funds when the capital market is in succession. This
relatively helps in reducing the level of underpricing that is conducted in the Australian
Capital market by the investors for increase their returns from investment. Moreover, the
comparison of the returns generated by the three organizations after the IPO is disputable, as
after adding the dividends only one organization was providing negative returns. Thus, it
could be understood that investments needs to be conducted with careful scrutiny by the
investors, as it is not full proof evidence that high level of returns can be generated by
conducting investments in initial public offerings.

MANAGING FINANCE
11
References and Bibliography:
Aboody, D., Even-Tov, O., Lehavy, R., & Trueman, B. (2018). Overnight returns and firm-
specific investor sentiment. Journal of Financial and Quantitative Analysis, 53(2),
485-505.
Bali, T. G., Bodnaruk, A., Scherbina, A., & Tang, Y. (2017). Unusual news flow and the
cross section of stock returns. Management Science, 64(9), 4137-4155.
Caballero, R. J., Farhi, E., & Gourinchas, P. O. (2017). Rents, technical change, and risk
premia accounting for secular trends in interest rates, returns on capital, earning
yields, and factor shares. American Economic Review, 107(5), 614-20.
Clementi, G. L., & Palazzo, B. (2019). Investment and the Cross‐Section of Equity
Returns. The Journal of Finance, 74(1), 281-321.
Eckhardt, J., Junkunc, M., & Li, M. (2018). Technical Specialized Knowledge and Founder
Leadership at Initial Public Offering. Eckhardt, J., Junkunc, M., & Li, M.(2018,
September 24). Technical specialized knowledge and founder leadership at initial
public offering. Entrepreneurship & Innovation Exchange. Retrieved March, 18,
2019.
Finance.yahoo.com. (2019). Finance.yahoo.com. Retrieved 15 August 2019, from
https://finance.yahoo.com/
Gan, C., Bian, C., Wu, D., & Cohen, D. A. (2017). Determinants of share returns following
repurchase announcements in China. Investment Management and Financial
Innovations, 14(2), 4-18.