Assess IPOs carefully in 2010: Aberdeen

The increase in the number of initial public offerings (IPOs) hitting the market is likely to continue in 2010, but there are several important factors investors should consider when assessing these offerings, according to Aberdeen Australia.

“When comparing an IPO to an investment in a listed company, the fundamental research required is very similar. We do not differentiate between IPOs or listed companies when it comes to our due diligence on quality,” said Michelle Lopez, Aberdeen Asset Management portfolio manager.

Some key factors to look out for when investing in an IPO are the sustainability of the business model, market conditions and, most importantly, the value of the offering.

“Given the limited published track record of an unlisted company, a discount compared to similar, successful listed companies with a track record of operating through cycles should apply,” Lopez said.

Company management is also important: whether or not the founders were still running the business, and whether the business had been grown organically or through aggressive acquisitions.

The company’s balance sheet in terms of private equity and intangible assets is also worth considering, since many of the recent IPOs have involved private equity re-floating the company.

“The key message to investors is, even when market conditions are good, the fundamentals must also be sound to make an IPO a worthy investment,” she said.