The second half of 2015 offered Canadian markets numerous initial public offerings (IPO’s), many of which we have talked about previously and were followed closely by investors. There was an excitement in the air behind the potential of many of these names and a lot of interest. Unfortunately, many of these stocks hit the market as macro headwinds were starting to worry investors and the effects of plummeting oil were beginning to be felt. With that in mind, we wanted to check in on this group of IPO’s to see how they have fared thus far and maybe what is in store in the future.

Hydro One (H, IPO in November 2015)

Likely the most publicized IPO in Canada for 2015, Hydro One has actually fared well relative to the TSX composite, up nearly 6% relative to the TSX, down just over 5%.  The offering also seemed to be priced fairly well, with no significant ‘pop’ in price when stocks began trading. With quarterly results released earlier in February, Hydro One was hurt a bit by warmer weather but earnings still beat expectations and a 34 cent dividend (which included a proportionate dividend from the time of the IPO) was paid while a dividend reinvestment plan (DRIP) was approved.  It is not a cheap name but given a monopoly-like position and 4% dividend, there are a lot of factors to like here. Our initial review of Hydro One can be found here.

Shopify (SH, IPO in May 2015)

While Hydro One was the most covered IPO in Canada for 2015, Shopify was a close second. Shopify had all of the makings of a classic tech IPO, and even the performance from the outset seemed to mirror this with the company shooting up over 60% in the first few months of trading. The hype seemed to dwindle over time though, with the stock now down ~6% from the original IPO price.  We generally prefer to sit on the sidelines when looking at an IPO. A lot of money can be made on an IPO but retail investors often find themselves chasing a rising share price only to get orders filled near the top. We would rather let the dust settle and revisit the stock after the company has a few quarters under its belt. Since the peak in shares, SH faced an investment environment that shunned growth stocks and also concern over a share lock-up expiry, exacerbating selling pressure. Now, with shares below the IPO, we actually see a great deal of potential behind Shopify and with revenue growth in excess of 20% expected out to 2019, it is a hard name to ignore. This is one of the reasons we have recently added Shopify to one of our model portfolios. Finally, with a rather thin technology sector on the TSX, we think a company like SH will get a lot of attention from markets, not only because of the potential, but because it is one of the only ‘games in town’ in a thin tech sector.

Spin Master (TOY, IPO in July 2015)

Our initial thoughts on Spin Master were looking to be accurate in early February but with the announcement of TOY purchasing Etch A Sketch, things took a quick turn for the better at Spin Master.  With TOY now trading up roughly 25% from the IPO, performance has been stellar given the overall markets but we feel our concerns surrounding a mature market and a rich valuation are still worth considering. 

exactEarth (XCT, ‘IPO’ in February, 2016)

While it was more of a spin-off from Com-Dev, which was purchased last year, we had some concerns over exactEarth’s valuation when they were first looking to spin the company out. Apparently the markets did as well, as the offering was shelved until Com-Dev was purchased.  Unfortunately, time did not help alleviate market concerns, with XCT now down just over 19%, which is the opposite effect you would hope for when a stock starts trading.  exactEarth is interesting, but it is also opening up a new market all by itself, so there is a lot of uncertainty and the investment ‘story’ is not an easy one to tell, which likely helps to keep early investors away.  We think a lot of our comments in our initial analysis (linked above) still ring true today.

2015 had numerous IPO’s for Canadian investors to digest (Stingray Digital, Sleep Country and GDI Integrated Facility are some others readers can look at). Some of them were successful; some of them not so much and others are just getting started. While we hope for nothing but the best with these IPO’s that hit the markets, investors need to remember that all that glitters is not gold and be able to look past a lot of the marketing and hype that often surrounds these events. Summer of 2015 was a busy one for new issues and for those in Canada who got a taste of spring this past week, the summer of 2016 cannot come soon enough.