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Stone Fox Capital Advisors is a registered investment advisor founded in 2010. The firm offers portfolio management with a focus on opportunistic stocks providing secular growth trends at an affordable value. An emphasis is placed on fundamental analysis though charts are used for timing entry... More
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  • Interesting IPOs This Past Week 0 comments
    Mar 30, 2012 11:42 AM | about stocks: LUCA, MM, BNNY, ENPH, GLOG, PRSS

    The Week of March 26 is chock full of IPOs with several of them providing interesting investment opportunities. Naturally the key being the pricing terms and the ability to get in on the IPO or in the after market at a reasonable price.

    A perfect example was yesterday's IPO of Annie's (BNNY). The stock priced at $19 and opened over $31. Though it closed near $36, investors in the after market saw very little of the gains today and face a ton of risk. Not an ideal combination.

    In a lot of cases, the key to IPO stocks is to just follow and wait for opportunities in the future. Remember that most of these companies coming public have bright futures. Its just a matter of matching up the valuation with the growth opportunity.

    Unlike existing public stocks, investors haven't had an opportunity to listen to the executives via quarterly conference calls or investor presentations and match that up with actual results.

    Can management deliver on guidance? Does the story presented come to fruition? This can have dramatic impacts of future stock prices.

    These facts are all lacking until an IPO stock reports that first earnings after going public. Sometimes its just better to wait so that the story is fully vetted. Not to mention, reviewing the prospectus can be a nightmare when trying to understand the financials.

    What we like to do is review interesting companies via the prospectus and roadshow presentation, then follow the companies progress. If the price is right in the after market, the stock might be bought immediately or the next few days. Typically though we'll just follow interesting companies for weeks, months, and even quarters until the hype over the IPO is over and an interesting story can be bought on the cheap.

    With that frame of mind, several interesting stocks are set to IPO this week including CafePress (PRSS), Enphase Energy (ENPH),GasLog (GLOG), Luca Technologies (LUCA), and Millennial Media (MM). Unless one gets ignored my the market, we'll probably just watch from a distance on these for now.

    CafePress operates a print on demand e-commerce site where customers create, buy, and sell personalized products. The company recorded revenue of $175.5M in 2011, an increase of 37% over the previous year. The IPO was priced at $19 for 4.5M shares, slightly above the original $16 to $18 range. The company will only net $47M from selling 2.5M shares while shareholders unload the other 2M shares.

    At a market capitalization of around $300M, the stock is one of the cheaper valued IPOs on a revenue basis. The key will be whether this crowdsourcing printer can achieve higher margins and profits in the future.

    Enphase Energy makes technology used to convert solar power to electricity dramatically cut the estimated price range of its IPO to $6 to $7 a share, from its earlier range of $10 to $12. The company still plans to offer 7.27M shares, but now will only raise $47M at the midpoint of the range.

    The company is the clear leader in the microinverter space and benefits from the increase in the solar panel market due to lower average selling prices. Revenue grew to $150M in 2011 or nearly 150%. Gross margins are rapidly expanding though the company is still losing money.

    Unfortunately the company has picked a horrible time to bring a solar equipment provider public. The valuation will be very compelling at the new offering range, but it will likely struggle in the after market for a while.

    GasLog currently operates 2 LNG ships with 8 newbuilds on order at Samsung. The company also manages 12 ships for BG. 8 of the 10 ships are already under long term contracts.

    The Bermuda based company expects to receive $400M in proceeds at the midpoint price of $17. This will give the company a $1.07B market cap with only $56M in revenue for 2012. Revenues will jump above $200M once most of the newbuilds are in operation. Adjusted EBITDA is expected to exceed $200M by 2015.

    According to the IPO presentation, the LNG market has a planned need for 100 ships by 2016 with only 58 ships on order. If theCheniere (LNG) project in the US reaches production, the industry will need another 25 ships leaving a large gap.

    The valuation might be attractive once the newbuilds are in operation, but for now the value seems steep considering the time that will pass before the ships are built.

    Luca Technologies uses proprietary technology to tap microorganisms in coal, oil, and organic-rich shale deposits to speed the fuels' conversion into methane, the main component of natural gas.

    The company plans to offer 8.5M shares at a price of $11 to $13 which would raise up to $125M. Unfortunately the company has operated at a loss for the pass six years. The proceeds will be used to acquire more wells and infrastructure in Wyoming's Powder River Basin and elsewhere. The company believes an ideal opportunity exists to buy cheap wells while natural gas prices are depressed.

    While an interesting technology, the company will need to prove the ability to become profitable making the stock something to watch for now.

    Millennial Media operates the largest independent mobile advertising network. With a roughly 17% market share, the company only trails Google (GOOG) and recently passed Apple (AAPL).

    The offering has been priced at $13, the high end of its upwardly revised range. The company raised $133M by offering 10.2M shares (10% insider). Revenue hit $104M in 2011 with the company basically reporting breakeven results. At the offering price, the stock trades close to a $1B market cap

    Though revenue grew at over 100%, the company is trading at a lofty valuation. Regardless, look for a strong opening by the stock as Millennial offers a unique investment opportunity in a fast growing sector.

    Conclusion
    As evidenced by the Annie's deal today, the market for IPOs is exceptionally hot right now. This reminds us of the China tech IPO market last year which didn't turn out very well for after market investors. Caution is definitely warranted for anybody not looking to trade the initial pops.

    All interested investors should review the retail presentations and prospectus available at retailroadshow.com.

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

    Additional disclosure: Please consult your financial advisor before making any investment decisions.

    Stocks: LUCA, MM, BNNY, ENPH, GLOG, PRSS
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