Timing uncertain for new entries to market


C&C and Eircom could together add between €2-€3bn to the market, writes Una McCaffrey

Perhaps the best way to take a measure of how well the Irish market has emerged from 2003 is to take a look at how its shape and size are likely to develop over the coming year. No fewer than eight listed companies of various sizes decided, for their own reasons, to depart the ISEQ over the past 12 months, with another particularly heavy hitter - First Active - due to leave in early January.

Over the same period, not a single company arrived to take their place, with the market ending up with a substantial net loss of members for another year. What is different this time round, however, is that almost no market watcher is expecting the same result in 2004. Who might leave next year is anybody's guess but the consensus suggests that at least two companies, and large ones at that, will be there to fill at least part of the gap.

The chief suspect on this front is drinks and snacks group C&C, which was forced to abandon a flotation in mid-2002 because of the market upheaval that reigned at the time. In the event, the decision to hold off may have been wise for another reason, with analysts suggesting that the negative effects of excise changes introduced some months later could have forced the firm to issue a profit warning that could have sent its shares into freefall.

This was followed by trading difficulties at C&C's crisps operation, Tayto, which would almost certainly have had a further dampening effect on valuations.

The company's chief executive, Mr Maurice Pratt, has long been open in expressing a desire to try for a listing again but the timing has, until now at least, never been quite right.

One fund manager told The Irish Times this week that the spectre of a failed flotation would have little impact on how the market would respond to another effort, saying the company had not been blamed for what was effectively beyond its control.

As with all companies that might look at coming to the market, he said, it is a question of fundamentals, including the dividend that shareholders might expect to draw from their holding.

"They may have to come back with a value play," agreed another market-watcher, noting the mature profile of most of C&C's businesses. "It's all about the divvy," he added.

Another company where the dividend profile would be of key importance on the listing front is Eircom, which left hundreds of thousands of small investors with a sour taste when its short-lived stint on the ISEQ was terminated at the end of 2001.

Two years on, a second move on to the exchange is becoming more and more likely all the time for the telecoms firm, which has turned a €51 million loss in the year to the end of March 2002 into a €180 million profit in 2003. Debt has also been restructured, largely through a €1 billion bond issued earlier this year.

Most commentators believe that a new Eircom listing will occur at some point, but the timing is, so far, uncertain. But as one equity analyst pointed out: "It doesn't take long to plan an IPO once you push the button."

Analysts recognise that the firm has moved forward since it was bought out by the Valentia consortium, but say that a healthier balance sheet may not be enough to lure them back in. "They would come back in better shape but would need to be promising a good dividend and good dividend cover before anybody would be interested," said one, adding that a solid model for growth would also be required.

"They need to prove that fixed-line business is not wilting away."

C&C and Eircom could together add between €2-€3 billion to the market - a most respectable sum by anybody's standards. Some commentators believe that the bonanza could be even larger however, with tales of at least two other potential IPOs circulating on the rumour mill.

The lead candidate at this level is Smurfit, which was taken private in a €3.75 billion leveraged buyout just last year. The consensus here suggests that, while the firm will almost certainly list again somewhere at some point, 2004 and the Irish market may not fit the bill.

"It seems very, very quick," says one party watching with interest, suggesting that the beneficial effects of delisting in the first place may not yet have come into effect at the firm.

Another points out that the global paper market in which the company operates looks to be at the very start of a market upswing, a factor which again points to a delayed listing as a preferred option.

As with C&C and Eircom however, a properly priced stock will automatically hold some appeal for institutions that have been starved of Irish IPOs for too long.

Another name featuring prominently in market gossip is NTR, a firm whose diverse interests include toll roads, waste management and telecommunications.

The company differs from other non-public companies because it is already traded on a "grey" market. Its market cap stands at €247 million, making it about the same size as Irish Continental Group.

Major NTR shareholders include pension fund managers such as Bank of Ireland Asset Management and Scottish Provident. Dividends, important for all shareholders, tend to be particularly significant for such investors and, at the moment, they're very healthy in NTR, coming in at about 30 cents per share.

Behind NTR, the one remaining potential listee is Aer Lingus, the once-troubled and now-recovered national flag carrier. The company has been a background flotation candidate for the past couple of years, but seems to be getting no closer to seeing its name on the board as time moves on.

"It would still be an uphill battle to sell to Irish institutions - it would have to be pretty cheap," said one market-watcher this week. "National flag carriers have notoriously been bad investments."

Another points out that Ryanair would be hard to beat on the asset allocation front, with one Irish airline more than enough for most investors looking for exposure to the sector.

As with all other IPO aspirants, however, analysts agree Aer Lingus would find its buyers if it was priced attractively.