Institutions Get it Wrong with Latitude IPO

After being snubbed by overseas institutional investors, Latitude Financials second attempt to list on the Australian Securities Exchange last week has failed. While local investors were strongly in support of its initial public offering (IPO), you have to ask if the institutions got it wrong.

There is an old saying that everything is for sale at a price, however, while I believed the asking price for Latitude’s IPO was a little high, as stated in last week's market report, it seems the broader market also agreed. Given this, Latitude dropped the asking price not long before it pulled the plug on the IPO altogether, as it was not supported by overseas institutions who, in my opinion, wrongly categorized Latitude as a bank.

Did the institutions get Latitude Financials IPO wrong?

Latitude is profitable, and while it is more old school financing, it has a long history of trading and if it had floated it would have had a market capitalization similar to Afterpay. So while Latitude may not have reached the dizzying growth of Afterpay and Zip Pay, if it had floated it would have been a success for all investors.

While we will never know, I suspect the reason why institutional investors avoided this float might be something other than what we are being led to believe. In my opinion, institutions were more concerned about having another short-term loan company listing on the exchange and how this might dilute demand for Afterpay and Zip Pay.

Having another company in this space would also most likely trigger a rebalance of portfolios, particularly given that Sezzle (SZL), a US buy now pay later company, only listed on the Australian exchange in late July.

Since listing almost 60 days ago on 30 July, Sezzle has really only traded sideways, and as of writing, it is slightly down on its initial opening price of $2.50. Maybe Latitudes failure to launch was bad timing, wrong pricing, or something else we can only speculate about. What I would hope is that Latitude does attempt to relist, as it may just be third time lucky.

Top and bottom performing sectors and stocks

Looking at the sectors on the Australian stock market, last week was an interesting week. After starting strongly, the sectors showed weakness following reports that unemployment had dropped, which diluted the probability of another interest rate cut in November.

After being in the red the week prior, Energy was the strong performer last week up over 3 per cent while Healthcare and Consumer Discretionary rose over 2 per cent. Once again, the Materials sector was the worst performer down over 2 per cent given that BHP and RIO fell last week. Information Technology was also slightly in the red while Communication Services was in the green but only just.

Looking at the stocks in the ASX top 100, CYBG was once again the big mover last week up nearly 20 per cent so far. I urge investors not to get too excited about this stock, as it rebounding after huge falls, which could just be a sucker’s rally. Financial stocks, IOOF and Challenger, were also up over 10 per cent. The worst performers last week included Northern Star Resources down over 13 per cent, Evolution Mining down over 10 per cent and Fortescue down over 7 per cent.

So what’s next for the Australian stock market?

Despite all of the noise around global uncertainty our market has, once again, held up well, given that it rose strongly at the start of last week. That said, I still expect the Australian stock market to bottom out this month or early next month into the low I have been expecting

While the market has risen over the past two weeks, if it is going to turn into the low, it will start to happen this week, so we should expect to see a short, sharp downturn in the last few days of October or in the first week of November, as the market falls into the yearly low. As I have mentioned previously, I am expecting it to fall to between 6,400 and 6,200 points before turning to rise up into 2020.

Let’s get into this week’s stocks of interest. Watch the video to find out more.

Good luck and good trading!

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.