2020 has not exactly been a great year for IPOs. The pandemic has meant two things. First, that many IPOs were shelved, and second, for those who have come to market they had the challenge of valuation. However, this challenge has offered opportunity for investors during the pandemic.
Pensana Rare Earths
Clearly, until the recent November vaccine led recovery, it would pay to err on the side of caution in terms of pricing a business. In the case of rare earths specialist Pensana (PRE), the stock debuted at a sub £50m, versus £140m currently, rewarding investors who can spot an undervalued asset in a newly hot space.
The same theme has just played out at Kistos (KIST), where the hook is not only the latest sharp recovery for Crude Oil, it is the pedigree of the management. In this case we have the pixie dust of Non-executive chairman Andrew Austin formerly of IGas Energy, and then Rockrose Energy. His previous success has added to the Kistos share price already up nearly 40% since the initial debut in late November for the new company focused on energy and energy transactions. It was noticeable that having raised £36m, shares of Kistos near 100p were trading close to cash, offering a very attractive prospect.
Tirupati Graphite Priced To Fly?
The $64,000 question is what could be the next IPO to offer investors a swift re-rate, off the back of serving up a hot sector / business model, and a generously priced IPO? While Pensana and Kistos have already served up their initial spurt, newcomer Tirupati Graphite (TG) seems to be similarly priced to fly.
There are some similarities in terms of regarding Tirupati as being a quick re-rate candidate. With the new mania for all things renewable, and with electric vehicles now fully in the frame by the end of the decade, graphite has moved from Cinderella to Rock Star – especially since the pandemic began earlier this year. TG will now be centre stage in terms of its flake graphite for Lithium ion batteries and graphene, the “wonder material”, to be used in low carbon composites as part of the new green revolution.
Of course, it is normally the case that when there is a Gold Rush in a space competition can ratchet up. The advantage that TG has though, is not only the 100 years plus experience of the management in this space, but the way the company is vertically integrated. Handling the production, processing and delivery of graphite clearly helps quality control and margins.
Massive NPV Discount
However, the most attractive aspect of TG has to be the IPO pricing itself. This is relative not only to its future prospects, but the way that the company is already producing from its Sahamamy, Madagascar asset. Indeed, graphite is already being exported to key markets in the US, UK, Germany and India.
But what the 45p a share or £33.5m valuation suggests is that the company will initially be trading on a one times multiple of forecast 2023-2024 earnings of £50m. This would be only a tenth of broker Optiva’s NPV of £315m and well under a quarter of the £169m risked valuation.
The Dial Moves To Graphite
Given how much the dial has moved in favour of TG and graphite / graphene, it is likely that just this ongoing sentiment shift is going to work in favour of the stock price. In addition, the relative lack at the moment of ground floor IPO opportunities on the London market, does for now market out TG as a stock which could be the next IPO re-rate.
Private investors have the potential to be in at the same price as institutional investors on the Primary Bid platform currently. It will be interesting to see whether Tirupati Graphite gains some festive season cheer when it floats on the main board of the London Stock Exchange on December 11. Helping keep the situation tight initially will be the management’s near 40% holding in the stock, decent skin in the game, something which is subject to an initial lock-in period.
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