University Finance Report: IPO Analysis and Performance

This report provides a comprehensive analysis of Initial Public Offerings (IPOs) in the Australian market. It begins by examining IPO activity, including how funds are used by organizations like Nine Entertainment Corporation, Ozforex, and Hotel Property Investments, and analyzing the returns gener...Read More

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

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Table of Contents
Introduction:...............................................................................................................................2
a. Analysing the IPO activity and determining how the funds will be used by the organisation:
....................................................................................................................................................2
b. Discussing the relevant change in the cost of equity of IPO:................................................4
c. Highlighting the arguments on the extent of under-pricing, this differs from industry to
industry:......................................................................................................................................5
d. Analysing the changes in IPO activity of Australia from 2007 to 2017 and comparing the
activity with the economic growth:............................................................................................6
e. Critically analysing the performance of the IPO for the next 5 years after the issue:............7
f. Critically analysing the performance of the IPO after dividend is added for the next 5 years
after the issue:............................................................................................................................8
Conclusion:................................................................................................................................9
References and Bibliography:..................................................................................................10

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Introduction:
The IPO analysis has been conducted in the assessment to detect whether under-
pricing occurs in the Australian economy. In addition, the IPO activity of Australian Stock
market is evaluated to detect the changes in the IPOs from 2007 to 2017. The assessment has
also evaluated the change in IPO activities for the period of 10 years and linked it with the
economic condition of Australia. Further evaluation has been conducted on the performance
of the IPOs over the period of 5 years with the ASX index to determine the returns that has
been generated by the investors after investing in the IPO. The overall performance of the
share has been conducted with and without the dividends to determine the actual returns that
are enjoyed by investors.
a. Analysing the IPO activity and determining how the funds will be used by the
organisation:
Company Industry
Date
of
IPO
Amoun
t
Raised
Offe
r
price
Closing price on
first day of
trading
Return on
first day of
trading
Nine
Entertainment
Corporation Media
Dec-
13
$643.3
m 2.05 1.98 -3.41%
Ozforex
Diversifi
ed
financial
Oct-
13
$439.4
m 2 2.56 28.00%
Hotel Property
Investments
Real
Estate
Dec-
13 $279m 2.1 1.94 -7.62%
Compan
y Name
Indus
try
Dat
e of
IP
O
Amoun
t
intende
d to
raise
Amou
nt
actuall
y
raised The purpose of the funds
Nine
Entertain
ment
Corporati
Medi
a
De
c-
13
643.3 $643.3
m
Repayment of debt, payment to SaleCo,
increase in cash and cash equivalents and
additional financial flexibility to pursue the
growth strategy

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on
Ozforex
Diver
sified
financ
ial
Oct
-13 480
$439.4
m
Paying dividend to the existing share holder
and increasing capital management
flexibility
Hotel
Property
Investme
nts
Real
Estate
Jun
-13 279 $279m
Improve capital management flexibility, To
be paid to the Existing Unitholders,
Refinancing of existing debt, Working
capital and Transaction costs
The above table provides information on the initial public offerings that were
conducted 2013 by nine entertainment Corporation, hotel property Investments, and Ozforex.
The table correctly provides information regarding the industry the organizations are
connected to and the returns that were provided on the day of the share issue. The highlight of
the public Offering of Nine Entertainments Corporation was to acquire the capital for
repayment of debts, increasing the cash and cash equivalents, pursuing strategic growth and
improving its financial flexibility. The company aimed to raise 643.3 million from the IPO
and was able to collect the required sum for its operations. During the date of the IPO, share
price of organization declined by 3.41%, where the offer price stood at 2.05, while the
closing price of the day was 1.98.
The IPO also allowed Ozforex to acquire the required capital from its share issue
during December 2013. The company aimed to raise $279 million from its initial public
offering and was able to collect the required fund. Moreover, the company witnessed a hike
in the share value during the day of IPO, where the offering price was at $2, while the close
price was at $2.56, which raised the return for the day to 28%. The IPO was initiated to
support the dividends payments to the existing shareholders and increasing the capital
flexibility of the organization (Asx.com.au, 2019).
Moreover, the IPO of Hotel Property Investments was initiated in June 2013, where
the organization aims to raise $279 million from their share issue, which was collected after

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the event. The share issue was conducted for improving the capital management flexibility,
maintaining working capital, refinancing the existing debt and conducting the transaction
costs. During the day of the IPO, the overall share price fell by -7.62%, as the offer price was
$2.1, while the first day closing price was 1.94. Therefore, the IPO was successful, as the
company was able to raise the required level of capital from the market to fuel its future
growth opportunities (Hpitrust.com.au, 2019).
b. Discussing the relevant change in the cost of equity of IPO:
Particulars
Nine Entertainment
Corporation
Hotel Property
Investments
Ozforex
G 10.0% 10.0% 10.0%
P0 1.99 2.69 3.3
D1 0.042 0.17 0.0104
Ke 12.1% 16.24% 10.3%
Information of cost of equity for the IPOs are relatively detected in the above table,
where after the share issue the cost of equity has been calculated to determine Rising demand
from the investors. However, before the initiation of the public offering overall cost of equity
of an organization is considered to be nil. Therefore, after the issue of shares the overall cost
of capital for Nine Entertainment Corporation has been at the levels of 12.1%, while Hotel
Property Investments value is that 16.24% and Ozforex value is at 10.3%. After the
completion of the public offering companies overall cost of equity increases which was
previously fueled by debt and owners capital. Jog, Otchere & Sun (2019) stated that cost of
equity values are derived by using the dividend discount model or CAPM model. However,
after the IPO the overall WACC of the company changes, where both the cost of debt and
cost of equity are used for detecting the minimum return that needs to be achieved by the
organization.

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c. Highlighting the arguments on the extent of under-pricing, this differs from industry
to industry:
The IPO under-pricing has been one of the major concerns for the organisations, as
they are not able to collect the required funding from their share issue. In addition, the under-
pricing of the IPO allows the investors to gain higher returns from investment. Boulton,
Smart & Zutter (2018) mentioned that under-pricing has been a major problematic condition
for the organisation, as they are not able to gather the required level of funding from the
initial public offering. There has been a study in America, where more than 8000 IPOs were
analysed to detect the existing the IPO under-pricing. From the evaluation of the study, it has
been detected that the initial public offering where underpriced by an average of 18%, which
directly supports the existence of IPO underpricing. The underpricing is conducted for
attracting more investors into the vicinity of the organization, which allows them to increase
their shareholders and acquire the required capital for supporting their future activities.
The initial public offering allows the investors and undue advantage which can
increase the returns buy more than hundred percent in the long run. Company stocks like
Apple Inc., Microsoft, JB-hi-fi, Facebook, Amazon, and Twitter was able to provide higher
returns to the investors after their initial public offering. Therefore, the underpricing of the
stock is considered to be a major activity which completes the overall process of fundraising.
The underpricing value of IPO in Australia is relatively at the levels of 16.6%, where the
initial public offering is priced lower for effectively completing the transaction and acquiring
the required capital. Therefore, underpricing exists in all the markets all around the world, as
it helps in attracting more investors, which allows the organization to gather the capital for
their expansion activities (Bhagat, Lu & Rangan, 2018).

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d. Analysing the changes in IPO activity of Australia from 2007 to 2017 and comparing
the activity with the economic growth:
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
0.00
50.00
100.00
150.00
200.00
250.00
300.00
-100.000%
-50.000%
0.000%
50.000%
100.000%
150.000%
260.00
75.00
42.00
99.00 105.00
51.00 61.00 73.00
97.00 94.00
115.00
41.304%
-71.154%
-44.000%
135.714%
6.061%
-51.429%
19.608%19.672%
32.877%
-3.093%
22.340%
IPO ActivityIPO activity Change in number of listings
Year
IPO
activity
Change in number of
listings
2007 260.00 41.304%
2008 75.00 -71.154%
2009 42.00 -44.000%
2010 99.00 135.714%
2011 105.00 6.061%
2012 51.00 -51.429%
2013 61.00 19.608%
2014 73.00 19.672%
2015 97.00 32.877%
2016 94.00 -3.093%
2017 115.00 22.340%
The IPO activity of Australia evaluated in the above table and figure, where it could
be identified that the initial public offerings of the country has deteriorated over the period of
10 years. Initially the IPO activity of 2007 was around 260, which drastically declined to 75
in 2008, which indicates that a decline of -71.154% was witnessed during the financial crisis.

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After the financial crisis, Australia market was relatively covering from the losses, which did
not increase the IPO activity to the levels of 2007.However, from 2012 the IPO activity
started to incline rather than decline, which was witnessed during the previous years. The IPO
increased from the levels of 51 in 2012 to 115 in 2017, which can be considered as a relevant
improvement of more than 100% in the activity of IPO. Yong & Albada (2018) mentioned
that with the increment in IPO initiation the investors are able to secure higher returns
yielding investments, which can increase their returns in the long run. The economic
conditions of Australia were relevantly improving from 2012, which is the main reason
behind the increment in the IPOs conducted in the capital market. After the finical crisis the
Australian economy was slow, this is the main reason behind the decline in the IPOs that
were conducted during the period.
e. Critically analysing the performance of the IPO for the next 5 years after the issue:
Nine Entertainment
Corporation
Share
price Return
All Ordinaries
Index Return
2013 1.9900 5353.0800
2014 1.8500 -7.0% 5388.1400 0.7%
2015 1.5500 -16.2% 5344.6000 -0.8%
2016 1.0500 -32.3% 5719.1400 7.0%
2017 1.3800 31.4% 6167.2000 7.8%
Growth rate -24.1% 14.7%
Hotel Property Investments
Share
price Return
All Ordinaries
Index Return
2013 1.9800 5353.0800
2014 2.6900 35.9% 5388.1400 0.7%
2015 2.6600 -1.1% 5344.6000 -0.8%
2016 2.8400 6.8% 5719.1400 7.0%
2017 3.3300 17.3% 6167.2000 7.8%
Growth rate 58.8% 14.7%
Ozforex
Share
price Return
All Ordinaries
Index Return
2013 2.7800 5353.0800
2014 2.8500 2.5% 5388.1400 0.7%
2015 3.2800 15.1% 5344.6000 -0.8%

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2016 1.6800 -48.8% 5719.1400 7.0%
2017 1.4200 -15.5% 6167.2000 7.8%
Growth rate -46.7% 14.7%
The performance of the IPOs is identified in the above table, where the share price of
company is evaluated with the Australian index. The analysis would eventually help in
identifying whether the investment in public offerings are providing higher returns to the
investors. However, negative vibe has been detected from the initial public offerings, as only
Hotel Property Investments provides higher growth rate and returns then the Australian index
in comparison to Nine Entertainment Corporation and Ozforex. The Index has provided a
return of 14.7% in the five-year period, while Hotel Property Investments has given a return
of 58.8%, whereas Nine Entertainment Corporation return was -24.1 and Ozforex -46.7%.
f. Critically analysing the performance of the IPO after dividend is added for the next 5
years after the issue:
Nine Entertainment
Corporation
Share
price
Dividen
d Return
All Ordinaries
Index Return
2013 1.9900 0 5353.0800
2014 1.8500 0.042 -4.9% 5388.1400 0.7%
2015 1.5500 0.092 -11.2% 5344.6000 -0.8%
2016 1.0500 0.12 -24.5% 5719.1400 7.0%
2017 1.3800 0.095 40.5% 6167.2000 7.8%
Growth rate -0.2% 14.7%
Hotel Property Investments
Share
price
Dividen
d Return
All Ordinaries
Index Return
2013 1.9800 5353.0800
2014 2.6900 0.1678 44.3% 5388.1400 0.7%
2015 2.6600 0.174 5.4% 5344.6000 -0.8%
2016 2.8400 0.315 18.6% 5719.1400 7.0%
2017 3.3300 0.197 24.2% 6167.2000 7.8%
Growth rate 92.5% 14.7%
Ozforex
Share
price
Dividen
d Return
All Ordinaries
Index Return
2013 2.7800 5353.0800

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2014 2.8500 0.0587 4.6% 5388.1400 0.7%
2015 3.2800 0.0718 17.6% 5344.6000 -0.8%
2016 1.6800 0.059 -47.0% 5719.1400 7.0%
2017 1.4200 0.053 -12.3% 6167.2000 7.8%
Growth rate -37.1% 14.7%
The analysis of company is conducted for the five-year period after adding the
dividend that has been declared. This addition of the dividends has relatively changed the
overall returns of the organization over the period of 5 years. From the valuation it can be
identify that returns of Hotel Property Investment has increased levels of 92.5% in 5 years.
On the other hand, both Ozforex and Nine Entertainment Corporation returns are negative
over the 5 years. This directly indicates that the performance of Hotel Property Investment
has relevantly higher than the other IPOs (Chourou, Saadi & Zhu, 2018).
Conclusion:
The analysis of the IPO activities of Australia has directly detected that the overall
performance of the capital market has mainly declined over the period of time. The IPO
activities of the Australian economy declined during the 2008 due to the economic downturn.
The analysis has also indicated that only Hotel Property Investment has provided the highest
level of returns to the investors, while both Ozforex and Nine Entertainment Corporation has
not provided higher returns to the investors, as loss on growth was faced. The investors to
generate higher returns to the investors have conducted the underpricing of the IPO.

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References and Bibliography:
Anand, R., & Singh, B. (2019). Do Firm-and Board-specific Characteristics Corroborate
Underpricing? A Study on the Indian IPOs. Management and Labour Studies, 44(1),
86-102.
Asx.com.au. (2019). Asx.com.au. Retrieved 26 April 2019, from
https://www.asx.com.au/asxpdf/20141007/pdf/42sqt724zt5g78.pdf
Badru, B. O., & Ahmad-Zaluki, N. A. (2018). Explaining IPO initial returns in Malaysia: ex
ante uncertainty vs signalling. Asian Review of Accounting, 26(1), 84-106.
Bhagat, S., Lu, J., & Rangan, S. (2018). IPO Valuation. In The Oxford Handbook of IPOs (p.
108). Oxford University Press.
Boulton, T., Smart, S., & Zutter, C. (2018). Determinants of Variation in IPO Underpricing.
In The Oxford Handbook of IPOs (p. 81). Oxford University Press.
Chourou, L., Saadi, S., & Zhu, H. (2018). How does national culture influence IPO
underpricing?. Pacific-Basin Finance Journal, 51, 318-341.
Esfahanipour, A., Goodarzi, M., & Jahanbin, R. (2016). Analysis and forecasting of IPO
underpricing. Neural Computing and Applications, 27(3), 651-658.
Hpitrust.com.au. (2019). Hpitrust.com.au. Retrieved 26 April 2019, from
https://www.hpitrust.com.au/cms/sites/default/files/asx-announcements/
HPI_PDS_v11b_26112013.pdf
Hpitrust.com.au. (2019). Hpitrust.com.au. Retrieved 26 April 2019, from
https://www.hpitrust.com.au/cms/sites/default/files/statutory_accounts_hpi_full_year_
30-jun-2014_final.pdf

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Jog, V., Otchere, I., & Sun, C. (2019). Does the two-stage IPO process reduce underpricing
and long run underperformance? Evidence from Chinese firms listed in the
US. Journal of International Financial Markets, Institutions and Money, 59, 90-105.
Li, R., Liu, W., Liu, Y., & Tsai, S. B. (2018). IPO Underpricing After the 2008 Financial
Crisis: A Study of the Chinese Stock Markets. Sustainability, 10(8), 2844.
Nineentertainmentco.com.au. (2019). Nineentertainmentco.com.au. Retrieved 26 April 2019,
from https://www.nineentertainmentco.com.au/investor-centre/asx-announcements
Sohail, M. K., Raheman, A., Zakaria, M., & Farhat, R. (2018). IPO Underpricing
Phenomenon on the Karachi Stock Exchange. Argumenta Oeconomica, 41(2), 225-
255.
Sohail, M., Bilal, H., Rukh, L., & Fatima, S. (2018). Determinants of Under Pricing of Initial
Public Offerings and its Long Run Performance in Pakistan. Pakistan Journal of
Social Sciences (PJSS), 38(2).
Yong, O., & Albada, A. Z. (2018). Under-Pricing and Listing Board in Explaining
Heterogeneity of Opinion Regarding Values of Malaysian IPOs. Jurnal Pengurusan
(UKM Journal of Management), 52.