The review was nothing out of the ordinary. Another float, another avoid recommendation from The Intelligent Investor. Admittedly, James Greenhalgh’s review of the Burrup float was a particularly scathing one but when The West Australian called me for a comment, I simply pointed out what I point out every time a company floats on the stock exchange; typically, it’s a good time for the seller – who knows the business inside out – to be selling. That makes it a bad time for you – knowing a whole lot less than the seller – to be buying.
The article that followed the next day gave us some great publicity, but I had to read the section from the underwriter twice:
A UBS spokesman dismissed the investment note as “a promotional ploy by a stock tipsheet, rather than a serious attempt at analysis”.
Now, Mr Spokesman, I understand you’ve got a float to sell. But having an investment bank question my motives is like having Ben Cousins lecture me on drugs. Sure, publicity is good for our business. But it pales in comparison to the quality of our recommendations. If we get them wrong, people won’t pay us subscription fees.
Your company, Mr Spokesman, has a whole different set of incentives. Assuming the float goes ahead, you’ll get paid based on the float price. You’ll get $10m if too many investors listen to us and the price comes in at the bottom of the $1.75–$2.25 range, and $15m if you convince everyone it’s the greatest float ever. Not only are you incentivised to sell it to us at the highest price possible, but you don’t wear any of the risk if it all goes wrong.
Not bad for a few months’ work. Not as good as the $20m you collected for the RAMS float – the company’s current market capitalisation is only slightly more than your fee – but that’s a story for another day.
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Forager Funds is a boutique fund manager specialising in a value investing approach. We offer an ASX listed Australian Shares Fund as well as an International Shares Fund both aimed at delivering returns for long term investors.