As company reporting season continues, a raft of newly listed companies is under intense scrutiny from investors wanting to see prospectus forecasts exceeded.
The financial year to June 30, 2014, was the biggest for initial public offerings in the Australian market since the global financial crisis in 2007 - 2008.
"Companies are always under pressure to meet expectations during reporting season, but the focus is definitely greater on those reporting as a publicly listed entity for the first time," Commonwealth Bank of Australia managing director equity capital markets Geoff Carrick said.
Missing prospectus forecasts can result in the share price tanking, as happened to KFC franchise Collins Foods when its first set of numbers came in under target after listing in 2011.
Merely meeting guidance can also spark a drop in the share price.
"Some conservatism is expected in prospectus forecasts, so the market really wants to see those numbers exceeded rather than just met," Invesco investment manager Andrew Perks said.
But the quality of the result is also important, he said.
"Beating prospectus forecasts by organic growth is better than a potentially one-off cost out which may not be sustainable. As always, any change to the outlook as presented at IPO is also critical."
Genworth Mortgage Insurance Australia, the second largest float of 2014 to date, impressed when it reported its half-year results in late July. Genworth, which floated in May, upgraded its underlying net profit guidance for the full year to $250 million, up from the $231 million flagged in the prospectus.
But most of the new listings since July 1, 2013 are yet to divulge their latest results this reporting season, but the few that have reported so far have tended to only beat their guidance by small margins.
"This trend probably reflects that IPOs are being very keenly priced," Mr Perks said.
Fleet management and salary packaging business SG Fleet Group, which listed in March, beat its prospectus forecast for the financial year ended June 30, 2014 by just 1 per cent when it reported on Tuesday.
Market reaction can be harsh
For those companies that floated as recently as June, the market reaction is likely to be especially harsh if they miss guidance. June listings to watch out for include media monitor iSentia Group, toilet paper maker Asaleo Care, fertility clinic operator Monash IVF, hotels operator Mantra Group, utilities software company Gentrack, and ragtraders The PAS Group.
Reporting season is also a chance for newly listed companies to convince analysts that it is worthwhile commencing coverage, or catch the attention of investors who did not buy into the IPO.
"Generally I like to see a few reporting periods prior to investing in assets coming out of private equity so that I am comfortable with the balance sheet and cashflows given they often cut costs too hard and under invest," Tyndall Asset Management chief investment officer Brad Potter said.
As a previously de-listed company that returned to the board in May following a stint under private equity ownership the corporate cleaning and hospitality facilities manager Spotless Group will really be under the microscope when it reports on Monday, August 25.
Television broadcaster Nine Entertainment Co and credit reporting agency Veda Group, are in a similar boat having both returned to the ASX following turnarounds under private equity in December.
Two of the best received floats of 2014 so far came from family owned and operated issuers. Automotive parts distributor Burson Group and lighting retailer Beacon Lighting Group, which both floated in April, are yet to report this season.
Having provided long operating histories in their prospectuses, Beacon and Burson are expected to meet their guidance easily, placing even more pressure on them to provide encouraging outlook statements highlighting their future growth prospects.
