Despite what appeared to be warmer conditions in the market last week, all but one IPO was either pulled or rescheduled, including the one mainstream IPO that ventured to test the waters of what has been an ice cold environment for new public offerings. This indicates that despite a rally that saw many of last the last two years’ blockbuster IPOs back from all-time-lows, we may be in for more weakness on the short term horizon.
However, the one IPO that did come to the table (GSUN), provided a reminder that there are still plenty of upside opportunities to be found in IPO land that can be played with a high level of conviction for substantial profits within the first two days of trading (although there has been a recent trend where these plays have taken a week or longer to manifest profits… ahem, PEV). This week we’ll be revisiting last week’s rescheduled IPOs with an added degree of skepticism, along with a new addition to the lineup from the same underwriter that brought us last week’s winner: so there’s plenty of potential opportunity on the agenda for this week.
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This Week’s IPOs:
Ivanhoe Electric (IE) – June 28, 2022 | 14.4M Shares
Warrantee (WRNT) – June 29, 2022 | 2.14M Shares
bioAffinity Technologies (BIAF) – July 1, 2022 | 1.5M Units
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Ok, Let’s jump in:
Ivanhoe Electric (IE) – June 28, 2022 | 14.4M Shares
Price Range: $11.75 – $12.50
Offering Size: $175M
Shares Outstanding: 92.6M
Industry: Mining and Energy Storage
Overview: This IPO was scheduled to debut last Friday, but appears to have had trouble filling their order book, with shares being offered for allocation request to WeBull traders: not really a great look for a company that was courting institutional investors for this mainstream IPO. Ivanhoe is a metal mining company operating in America and overseas, and sells related technologies to other miners.
Considerations:
Here’s what I wrote last week:
”I almost hesitate to label this as a “mainstream IPO” given that the lead underwriter is BMO Capital – an outfit that hasn’t been the lead underwriter on any IPOs in the past 12 months, but with Jefferies and JP Morgan attached, along with the substantial size of the deal, it’s certainly not a shady second-tier offering.
With that in mind, I do tend to like mainstream IPOs that debut in a cold market, especially if they come out right when the market is entering a reversal off bottoms. When the market is red-hot, for example in the second half of 2020 and first half of 2021, virtually every IPO debuted trading on the public markets with an incredible premium to the IPO price. A prime example: SNOW opened trading at $245 after pricing the IPO at $120 (which was way above the initial projected range). It still gave us an opening run up to $320 before reversing, and provided substantial upside from there over the next couple months (before receding since then to hit prices below even the IPO price, along with the rest of growth stocks).
In contrast, weak markets are anemic for IPOs, which means that when a mainstream IPO comes along and is willing to brave the chill of frosty market conditions, we get more reasonable pricing relative to traditional valuation. The underwriters still need to deliver a modest upside to their institutional investor clients, so we tend to see pricing fall within or below range, and retail demand is typically subdued a bit, so we don’t get extreme debut premiums. Looking back at EE and PFHC, we saw both of them provide debut entries with little downside risk, and while EE didn’t really offer much upside profit either, it did give debut buyers plenty of outs in the first 3 days of trading, while PFHC offered a nice little run on Day 1.. and broke out for a more profitable rally over the weeks following the IPO.
Beyond the market conditions, this company is a mining company and in addition to gold and silver, they mine metals that are used in electric vehicles, and that’s something that’s heavily in the spotlight these days. The float is pretty small for a mainstream IPO as well, and their growth numbers are rather impressive.
JP Morgan also tends to leave at least a little bit of meat on the bone for retailers to pick at.”
Since then the company rescheduled to this week, got trolled on CNBC by Jim Cramer, and offered allocation requests to retail traders on WeBull. I can’t really read any of this as being particularly bullish. If allocation requests on WeBull were substantial, then Cramer was most likely correct in his forecast of the debut, but there may be opportunity to trade this one off a hard drop on the opening, especially if this one prices at the low end of the range. I also wonder if the underwriter simply wasn’t up to the task of nailing down an anchor investor to hold down this deal or why they otherwise struggled to fill the order book for this IPO, but if inexperience on behalf of the underwriter was any factor in delaying this IPO, perhaps we get a relatively ‘fair’ price on this stock once it starts trading.
Remember also that Mr. Cramer, as much as I respect the man, about the DIDI IPO, “I would try to get as many shares as you can.” Well, that was perhaps the worst mainstream IPO I’ve ever witnessed, and one of only two IPOs where Etrade allocated any shares to me (thankfully, it was only a small request to begin with).
Growth Numbers:
– Revenue Growth: +333% for 3 months ending March 31, 2022
– Gross Profits: +440% for 3 months ending March 31, 2022
– Gross Margin: 99% for 3 months ending March 31, 2022
Baseline Financials:
– Cash Flow: negative – improving
– Net Income: negative – improving
– Operating Profit: negative – improving
Notes from the S-1:
–
Underwriters: BMO Capital Markets, Jefferies, JP Morgan
IPO Classification: Mainstream IPO
Recent Similar IPOs: EE PFHC
Trading Strategy:
Here’s what I wrote last week:
“If the market is strong this week, and there is a buy-side imbalance with not too heavy of a debut premium, I like this IPO for a $1-2 upside to the debut price, and possibly more. Similarly, if we see it price at the low end of range, and debut below that, I like the chances of a move back up to and beyond the IPO price (the underwriters are likely to protect the price anywhere below the IPO price).|”
Now that it’s been rescheduled, and Cramer has officially denounced it, on top of a potentially high allocation to retail traders, it doesn’t appear on the surface that this IPO is going to attract retail traders in the volume that results in significant upward price momentum. If I were to trade this in any capacity, I’d likely need to see it price below range, debut below IPO price, and downside movement from there on the debut. At that point we would expect the underwriter to be forced to protect the price from total collapse, and once panic sellers have evacuated their positions, we could see a bounce back to the IPO price by Day 2. Otherwise, I’m not too excited with this one.
Brand Name Recognition: Moderate.
Debut Trade Conviction Level: Moderate-High.
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Warrantee (WRNT) – June , 2022 | 2.14M Shares
Price Range: $6.00 – $8.00
Offering Size: $15M
Shares Outstanding: 12.14M
Industry: Marketing
Overview: This is a Japanese marketing /market research company that operates a business model whereby they facilitate free healthcare and product insurance (mostly on appliances) to individuals who then subsidize their benefits by authorizing the use of their data to the providers of those services. The website reads like a new-age utopian model of commerce, with opening lines such as, “In order to realize a “sustainable society,” we offer services that make it easy for people to pursue a comfortable lifestyle and maintain or recover their health.” .
Considerations: Were it not for the underwriter being Network 1 Financial, the same company that brought us GSUN last week, I’d simply chuckle at the suggestion that this company could raise enough buyer demand to go public on the NASDAQ under these market conditions. But when you bring in Network 1 Financial combined with an ultra-low float, and a company that’s based out of Asia, I have to take notice as a potential Stealth setup. Actually, their financials aren’t nearly as bad as some other recent low-float IPOs from lesser-known underwriters, but let’s not kid ourselves here: if you’re watching this one with the intention of taking a position on the opening print if we see a high debut premium, then you’re not really weighing traditional valuation metrics in your analysis of this company. It’s either going to have a tightly constrained volume that produces a substantial pop once shares start trading, or it’s going to be a bomb that drops in half or worse.
WRNT was available for allocation request on WeBull, and I put in a small order request to gauge whether retail traders would be given large portions of the float – how much of my request gets assigned will give me further insights as to whether it makes sense to add to my position on the debut or not.
Growth Numbers:
– Revenue Growth: +22% for 6 months ending September 30, 2021
– Gross Profits: +27% for 6 months ending September 30, 2021
– Gross Margin: 99% for 6 months ending September 31, 2021
…I don’t recall ever seeing gross margin numbers that high before.
Baseline Financials:
– Cash Flow: positive
– Net Income: negative
– Operating Profit: negaive
Notes from the F-1:
– “We have had only 11 customers and associated marketing campaigns to date”
Ok, so it’s a small company with not a lot of customers, noted.
– “The number of common shares to be outstanding immediately after this offering does not include: (a) up to 321,429 ADSs issuable upon the exercise in full by the underwriters of their option to purchase additional ADSs from us, and (b) up to an aggregate of 1,036,500 common shares issuable upon the exercise of stock options outstanding immediately after the completion of this offering, at a weighted-average exercise price of JPY110.37 per share.”
My math comes to roughly 1.36M additional shares that will be added to the float once the offering is completed… bringing the total float to nearly 3.5M shares.
Underwriters: Network 1 Financial
IPO Classification: Potential Stealth IPO
Recent Similar IPOs: HTCR
Trading Strategy: This one is a little tricky because it is missing one key ingredient for a traditional Stealth IPO – the obvious connection to China. As this is a NASDAQ listing, we should be able to see the debut premium at which this stock will begin trading on WeBull (mobile or desktop apps). If we see a debut premium in the $11-17 range, I feel fairly confident that we will see halts to the upside off the opening print. If it debuts essentially at or below the IPO price, then we’re likely to see retail traders panic sell it down further. At that point, I will look for an opportunity to take a position towards the end of the day should the stock fail to produce any kind of substantial rally, and be prepared to sell in the early pre-market on Day 2 if we get a spike.
Brand Name Recognition: Low.
Debut Trade Conviction Level: Tempered enthusiasm.
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bioAffinity Technologies (BIAF) – July 1, 2022 | 1.5M Units
Price Range: $6.75
Offering Size: $10M
Shares Outstanding: 7.5M
Industry: Biotech
Overview: Rescheduled from Jun 22, 2022. This is a diagnostics company focusing on non-invasive diagnosis of early-stage lung cancer and other lung diseases. They are per-revenue, and their lead diagnostic test is slated for FDA submission in Q3 2022, and expected to take 2-3 years.
Considerations: Here’s what I wrote last week:
”This one doesn’t have anything particularly enticing about it, the price point at $6.75 offers plenty of downside, as it likely comes down to the $2 zone as demand disappears once the IPO concludes; the Units mean there are warrants issued alongside the common shares in the offering and almost guarantees a debut below the IPO price; and the underwriter has not sponsored an IPO in the past 12 months. Ostensibly, short term catalysts tied to the company’s lead candidate seem to be relatively distant in the future. Having said that, when it’s ultra-low-float, and it appears bad on the surface, any kind of manipulation in the trading volume could produce volatility: as we saw with HSCS last week, the Day 2 runner can emerge at any moment: particularly when we least expect it, so I’ll at least be keeping watch on this one, albeit from the corner of my eye. In the near-short term, say 180 days, there are some potential catalysts as it aims to proceed with commercialization of its lead candidate “as an LDT under the CLIA program administered by the Centers for Medicare and Medicaid Services”… so with a microscopic float, any positive headline could trigger a run to the exercise of the warrants (see below in the S-1 notes).”
I don’t think anything has substantially changed here, except that it’s been moved to a Friday, which puts it in line to perform according to the typical “Biotech Bust” seem to gravitate towards the back end of the week.
Growth Numbers: none: it’s pre-revenue
Baseline Financials: with no revenue, they’re all negative.
Notes from the S-1:
– 14 of our current stockholders have indicated an interest in purchasing Units in this Offering and we currently anticipate they may purchase approximately 6.2% of the Units in this Offering not assuming the exercise of the Over-Allotment Option
Actually, this is kind of rare, and since they already control 46% of the voting power of the common stock, the float is likely to be restrained.
– Having completed the CLIA analytical validation, Precision Pathology is offering the CyPath® Lung test for sale with a controlled rollout beginning in Texas, which we anticipate will require six months, before expanding throughout the Southwest region of the U.S. through the first half of 2023. After establishing CyPath® Lung in the Southwest market, the laboratory will expand sales in 2023 to additional states with plans to market the test nationwide.
This aligns very nicely with a 180-day LPX, and warrant EP of 120% of the IPO price, ($8.10 based on the IPO price of $6.75). Keep that in mind if you want to pick this up on any pullbacks prior to LPX.
Underwriters: WallachBeth Capital
IPO Classification: Low Float Biotech (aka “Biotech Bust”)
Recent Similar IPOs: HSCS (and not TNON… at least I can’t expect it to do what TNON did, which turned out to be akin to a Stealth IPO setup and was priced substantially higher that this one.
Trading Strategy: Nothing’s really changed in my approach to this one, except that I may be even more hesitant to take any overnight position given that the Day 2 move with straddle a weekend.
I’ll be watching this one with no intention of playing it unless:
A) we see a significantly low volume on the opening print with a significant debut premium.
or
B) it tanks as hard as HSCS on Day 1 and falls throughout the day with no real reversal. So basically, it would have to fall below $2.00 into the close of the market, and then I’d take a flier on a possible Day 2 rally.
Brand Name Recognition: Low.
Debut Trade Conviction Level: Low
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