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Eroad IPO price set at $3-a-share, toward bottom of indicative range

Software firm Eroad is seeking $46.1 million in an initial public offer priced at $3-a-share, the company confirmed this morning.

Based on the final offer price, Eroad will have a market capitalisation of $180 million on listing.

The company develops products that allow transport companies to manage and pay road user charges and keep track of their fleet.

The final price per share was set at the bottom of the indicative range and exosting shareholders have sold less of their shareholding than initially flagged in the prospecus.

Eroad chief executive Steven Newman says the overall response from institutions from New Zealand and Australia and from NZX Firms was "extremely positive".

Institutional investors have been allocated slightly over 70% of the offer.

“Investors have been impressed by Eroad’s proven track record of significant growth in customer numbers, our move into profitability, and our substantial opportunities in North America,” says Mr Newman.

“Achieving an NZX Main Board listing will increase transparency and credibility with government regulators in its markets and enhance Eroad’s profile with customers.”

The offer comprises $40 million of new capital and a secondary offer of $6.1 million.

Eroad is selling 13.3 million new shares, with existing owners selling 2 million shares, fewer than the 2.4 million to 2.5 million initially discussed. CEO Steven Newman is the largest current shareholder in Eroad.

The offer opens on July 30 with the Broker Firm Offer closing on August 12. Shares are expected to begin trading on the NZX Main Board on August 15.

First NZ Capital is the sole lead manager for the offer with Deutsche Craigs co-manager. There is no public pool.

Founded in 2009, ERoad was the first company to provide a nationwide GPS-based road user charge system, according to information released by the company. 

It first turned a profit of $2.9 million in the year ended March 31, 2014, on sales of $10 million and forecasts revenue to rise to $19 million in 2015 and to $34 million in 2016, according to the prospectus.

Eroad expects to report a loss of $1 million in 2015 due to listing costs of $2 million, before returning to profit of $5.5 million in 2016. 

The company doesn't intend to pay dividends in the near term.

The sole lead manager for the offer is First NZ Capital, and Deutsche Craigs is the co-manager. 

The local stock market is experiencing a flurry of listings after it got a shot in the arm from the government's partial privatisations last year. 

Last week, ikeGPS Group, which sells a range of portable measuring devices, and Scales Corp, the fruit packager and exporter, debuted on the NZX, and Metro Performance Glass, New Zealand's largest glass maker, is due tomorrow. Last month, Gentrack Group, the utilities and airport software provider, and Serko, the travel booking system company, debuted. Others in the pipeline include Vista Group International, a cinema ticketing and data analytics firm.

dbridgeman@nbr.co.nz

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Comments and questions
6

Let's hope the stars align and the company performs extremely strongly, so that investors who acquired shares are able to earn minimum levels of return on their equity.

I would love to see the broker forecast model that justified the valuation on this thing. People are taking venture capital risk which would normally be justified by a discount rate of +35% but I wonder if the lead manager valued it using a typical cost of equity of around 11-12%. Why on earth anyone would be happy for adequate mature business type returns on a high risk VC punt is beyond me, but best of luck.

Now time for management to execute - go, go, go!!!

Who are the "institutions" that set the price in this book build? Are they credible? What percentage did they take? As for more typical larger company IPOs the price is set by an institutional book build and retail shareholders get stuck with the price from that process. In these cases the institutional component typically represents around 50% of the total demand, which gives retail investors comfort that they have done a due and diligent process and interrogated the price and forecast assumptions.

I would be astonished if Eroad raised the same amount of institutional coverage. As such some transparency around the level of institutional support would be comforting to retail investors. It would be very poor if the "institutions" wound up not being instos at all but high net wealth family offices who could afford a punt, and at very low levels of coverage, with retail investors expected to go along with them.

I don't have the answers - nor anything to suggest otherwise - but would be of real interest to a potential investor, and at the moment cynic.

As clearly stated in the story institutional investors were allocated over 70% - well above your 50% threshold.
This is evidence the pricing was set in an open and contestable process. I am excited about purchasing shares in this company.

Thanks, "interested party."

But I do stand corrected that I hadnt read in detail enough, but my question still stands; I would LOVE to see the detail of who qualifies as an "institution" - the cynic in me does not believe that these are proper institutional investors, but rather wealthy home office punters. I hope the business discloses who they are, and the shareholding spread between them.

Hmm - will be checking the register on day one to see the institutions that supported this issue to make sure my Kiwisaver isnt with them.

Huge price and valuation here, which will take some justifying in the next two years. Lets hope Oregon performs - and they can retain their marketshare in NZ - which I dont think is a given, or this is going to get very ugly and uncomfortable for First NZ and Craig & Co.

115 employees
Only $10M Sales
Over 30% return on sales
How much wage can possibly be capitalize?

Look at the comps.

This whole thing defies mathematics

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