Stock Market Launch

When a property company launches on the stock market a lot of information is disclosed. An investor can take advantage of this and use the prospectus  to learn as much as possible assuming one is looking for a company to invest in. The information is contained in the prospectus and this is what needs to be analyzed. But fist we need to consider the variety of ways that a company can get itself listed on the stock market. Firstly there is an introduction this is when a company already has a large number of shareholders and is not looking to raise new capital. The company just would like their shares listed on the stock market.

A second method is called a placing or intermediaries offer and this is where a large number of shares are sold privately to investors. The investors in this case are often the clients of the investment bank that is doing the placing. Sometimes the shares can also be placed with a variety of investment banks to be sold to their clients. This can help raise the profile of the placing.

The third method is the offer for sale or IPO as known in USA and this gives the public the chance to buy into the stock. In this case a prospectus and application form are available from brokers and banks. In this case the shares are offered at a fixed price which is determined by the investment bank hat is organizing the launch. The price is often comparable to other similar companies that are already trading on the market. However sometimes the shares are quoted a little under market value so that it provides an incentive for investors to come in.

Companies can launch the two markets is on the London Stock Exchange or the Alternative Investment Market. The main difference between two markets is that the LSE requires a three year track record between the two markets and the AIM requires less than this. at

There are a number of points that need attention when analyzing a prospectus. Firstly attention must be paid to whether the shares that are being offered are new shares or whether these are existing shares that are being unloaded by present shareholders. If the sale is to present shareholders the proceeds of the sale go to the shareholders and not the company itself.

Sometimes when a private company has been been built and existing shareholders want to bring it to market the reason can be simply the the existing shareholders want to cash out s when because they feel that the company is not going to grow anymore which might be for various reasons such as the real estate cycle is peaking out or they may feel that the property company is peaking out. This should be taken as a potential warning sign for new investors.

Investors must consider a number of factors when analyzing a company that is coming to market such as what kind of property company is it. For example a company might be an investment company where its primary source of cash flow is rents or it might be a development company where its primary source of income is the sale of new development it conducts. In this case the company would be classed as a trader. Or it might be a company that develops property and retains them for investment, or it might be a dealer which is a company which makes its money by the buying and selling of property owns. Any investor can often find this information in the prospectus of the company.

The type of property company is important because it helps the investor analyze the quality or risk of investing in the company. For example if the company derives a large amount of its rent from investment property this might be deemed as a more stable form of income than a property trader who might fall on hard times if they are unable to sell their development, or if development funding drys up or if asset values fall. It is also important for potential investors to recognize the quality of the assets that the company holds as these also will be important in determining how profitable the company will be in the long run which will ultimately affect its share price. In many cases if the company is an investment company the shares will often be quoted at a discount to net asset value. For example lets say the net asset backing is £1 per share. In this case the shares might be offered to the public at a discount of say 80p per share. If the property company is a trading company the shares might be valued in in a different way which might be based on another yardstick such as the PE ratio. Which is the price of a stock divided by its earnings. In this case it it possible that the price of the shares will be above net asset value. This difference in the way the property companies are valued is important for the investor because it reflects the risk of the investment. We can illustrate this with an example. Lets say that property trading company Focusnet  has assets of 50p per share and lets say that their projected earnings are 10p per share for the year. On a price earnings ratio of 10 the stock market might value the property at £1per share. This might be inherently risky for the investor because the investor because if the property market goes bad to to funding problems or a fall in values and the trading company is not able to sell its development for the anticipated price than the final backstop for the companies share price will be the asset values that the trading company Focusnet owns. At this stage the assets might be worth only 40 to 50p a big drop for from £1 which would cause the value of the shares to fall and the investor to lose money. This is why it is important for the investor to look at as many factors as possible when analyzing a development company such as the quality, skill and reputation they have as a developer and how long they have been developing for. For example if a property company is launching after only a track record of a couple of years and their track record was achieved during a bull market. Then it might be wise to treat this record with more skepticism and conduct a deeper analysis.

When analyzing a property company it is important to look at a variety of things in the prospectus, such as the history of the property company. How it was formed? Who formed it? How has the company grown over the years? Did it grow by by buying individual properties itself or did it grow by acquiring other property companies. These factors are important because the indicate the particular skillsets that the company has. The longer the a company for instance has has been developing