You have just commenced internship in the investment management division in an investment bank. As your first
Question:
You have just commenced internship in the investment management division in an investment bank. As your first task you have been allocated a prospectus for an initial public offering and have been asked to review the prospectus and have a report handy on the suitability of the investment at offer price indicated in the prospectus (note that your group is considering whether the investment bank should subscribe for IPO shares before the IPO company lists on the ASX).
Prospective investments will be allocated to the "small cap" portfolio which specialises in shares with small capitalisation and strong growth potential.
Company is: VNT - Ventia Services Group Limited.
Your supervisor observes that many IPOs are for start-up companies that have a limited history and do not provide forecasts of financial performance. She advises you that these companies have been chosen because they have provided some forecasts but that this does not necessarily mean that they are an appropriate investment.
You are also reminded that while the information in a prospectus must be factual, it is a sales document for the company and the company telling a positive story so the information provided may be selective.
Evaluate the IPO prospectus that you have been allocated to determine if the company is an appropriate investment for the small cap portfolio - in other words, is the market value of the shares higher than the issue price?
This will require an analysis of the qualitative aspect of the prospectus.
Qualitative components:
Consider the following issues:
Why are they raising the funds?
Are their claims about growth reasonable?
If forecasting growth - how will they grow: by increasing sales or reducing costs?
What might prevent them from achieving their growth plan/strategy?
Are there other factors that should be considered?
Fundamentals Of Corporate Finance
ISBN: 9781265553609
13th Edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan