The IPOX Week: Amid Diverging Spreads, More U.S. IPOs Are Lined Up

 |  Includes: CHUY, CMG, DFRG, NGVC, TFM
by: Josef Schuster


Blue-chip indexes rose during options expiration as good U.S. earnings mitigated weak U.S. small caps, a jittery Europe, and a strong dollar. With IPOX trading pressured for a second week, U.S. IPOs debuted strongly while IPOs on the Chinese mainland slumped. More U.S. and EM IPOs linked up.


Key IPOX Indexes mixed, trail benchmarks for a second week:

The key developed and emerging markets' blue-chip indexes rose on the week, driven by options expiration related asset allocation buying after weak economic data motivated speculation about QE3 and generally solid earnings. In the cross-section, stock indexes recorded big relative moves. While the S&P 500 rose (+0.43%), small-cap U.S. benchmark the Russell 2000 slumped (-1.18%). Abroad, while big foreign buying propelled the China-linked benchmarks HSCEI (+3.61%), the IPOX China 20 (CNI: -2.64%) slumped after huge moves in select members.

On the global level, the IPOX Global 50 (IPGL50) fell -0.01% to +9.08% YTD, lagging benchmark MSCI World (MXWD) by 57 basis points. The mixed showing extended across the IPOX Regional universe: In the United States, the IPOX U.S. 30 (IPXT) fell -0.53% to +12.90%, underperforming the S&P 500 for a second week. There was a dismal performance in key holding General Motors (NYSE:GM) (-1.33%) and electric car maker Tesla (NASDAQ:TSLA) (-7.18%). In Europe, big weakness among the Spanish banking conglomerate Bankia (-5.70%) and Caixabank (CABK SM: -7.43%) continued to pressure the IPOX Europe (IPXUJPEU, IXTE), despite a new all-time closing high for global online travel reservation operator Spanish Amadeus IT Holdings (AMS SM: +0.53%).

A big week for Italian fashion group Prada (1913 HK: +8.64%) helped relative sentiment in the IPOX Developed Asia-Pacific universe (IPTA: +1.23% to +12.61% year to date) as takeover activity within the luxury brand universe spurred interest in the H.K. traded stock. Upside was capped by another bad weak for Japanese Financial and top holding Dai-Ichi Life Insurance (8750 JT: -3.19%). Despite strengths in China-linked indexes (HSCEI, XIN0I), the IPOX China universe declined on weakness in cement maker China Shanshui (691 HK: -21.82%), Industrial China Rhongsheng Heavy (1101 HK: -14.88%), or Evergrande Real Estate (3333 HK: -7.77%).

IPOX Long-only Strategy Returns YTD 12

The week ahead -- more small-cap U.S. deals:

Company Ticker Country Lead
Ascendas Hospitality ASHT SP Singapore DBS, HSBC
Avast Software NV (Private:AVST) U.S.A. DB, JEFF
Chuy's Holdings Inc (NASDAQ:CHUY) U.S.A. JEFF, RWB
Del Frisco's Restaurant (NASDAQ:DFRG) U.S.A. DB, WFS
Hyperion Therapeutics (NASDAQ:HPTX) U.S.A. Cowen & Co
IHH Healthcare Bhd IHH SP Singapore CIMB, DBS
Natural Grocers (NYSE:NGVC) U.S.A. Piper Jaffray
Northern Tier Energy Inc (NYSE:NTI) U.S.A. BAML, JPM, CS
Click to enlarge

IPO focus remains on the red-hot U.S. specialty small-cap IPO market with second tier-quality deals testing sentiment. Valued at 1.38 times 2011 revenue, Mexican restaurant chain Chuy's Holding (CHUY) offers a large 38.78% of the company, with proceeds earmarked to repay debt. Stagnant but profitable high-end restaurant group Del Frisco (DFRG) is selling a 31.35% stake, seeking a valuation of around two times 2011 revenues, with most proceeds going to re-pay debt. Friday's plunge in $10 billion Mexican fast-food chain and stock market darling 2006 IPO Chipotle (NYSE:CMG) (-19.21%) should negatively affect initial pricing sentiment.

Specialty retailer Natural Grocers (US) is another large-float IPO scheduled, seeking to raise around $100 million for a 32.76% stake in the firm, with half of the proceeds going to selling shareholders. Revenues have grown an average of +13.35% over the past three years with 2010 IPO incumbent The Fresh Market (NASDAQ:TFM) (+135.91%) and 2012 IPO Roundy's (RNDY) (+16.11%) supportive. In foreign markets, oversubscribed Malaysian IHH Healthcare (IHH SP) is set to become the world's second-biggest healthcare provider with its stock dually listed in SP and Malaysia. The June 2012 Malaysian privatization of Felda Global (FGV MK) has been trading unchanged based on its first close on June 28, 2012.

Last week's IPOs: Recipe -- small size + float + growth

Company Ticker Return / IPO (%)
Durata Therapeutics Inc (NASDAQ:DRTX) +5.56%
Five Below Inc (NASDAQ:FIVE) +60.41%
Kayak Software Corp (NASDAQ:KYAK) +27.62%
Mastercraft International Holdings Ltd 8146 HK +1.43%
Palo Alto Networks Inc (NYSE:PANW) +26.50%
Click to enlarge

Fifteen firms commenced trading, with the average (median) IPO gaining +14.17% (+2.51%). Initial sentiment diverged sharply: While all key U.S. deals (KYAK, FIVE, and PANW) priced at the top end of their respective range and subsequently closed out their first trading day substantially higher, IPOs on the Chinese mainland plunged and closed the week an average -12.79% below offer.

Ticker (BBG/Reuters) Week Q2 12 YTD 12
IPOX Global 50 (IPGL50) (USD) -0.01% -8.13% +9.08%
MSCI World (MXWD) +0.56% -6.36% +3.88%
IPOX U.S. 100 (IPXO -0.20% -5.23% +12.71%
IPOX U.S. 30 (IPXT) -0.53% -3.67% +12.90%
S&P 500 (SPX) +0.43% -3.29% +8.35%
IPOX Europe50 (IPXUJPEU) (EUR) +0.03% -10.75% -4.19%
IPOX Europe30 (IXTE) (EUR) -0.35% -12.33% -8.39%
STOXX 50 (SX5P) (EUR) +0.27% -3.16% +3.25%
IPOX Asia-Pacific 30 (IPTA) +1.23% -5.69% +12.61%
MSCI Asia-Pacific (MXPC) +1.03% -6.89% +2.12%
IPOX China 20 -2.64% -8.97% -3.67%
Hang Seng Enprs. (HSCEI) +3.61% -10.01% -3.68%
Click to enlarge

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.