Tatsuro Nigauri, a small-cap fund manager who helps oversee 5 trillion yen ($50 billion) at Daiwa SB Investments Ltd., isn’t optimistic about the outlook for the IPO market and says the boom may end as early as December.
“The way some mediocre IPO companies such as System Information are priced signals the endgame will be on us soon,” said Nigauri. “I gave up buying some IPOs this year because the offering prices were pushed up by underwriters and the valuations became too high.”
System Information Co., which designs business applications and IT solutions, forecast earnings per share will fall 17% to 71.35 yen in the fiscal year ending September 2014. The company traded at 2,729 yen yesterday, 38 times forecast earnings, according to data compiled by Bloomberg. It surged as high as 6,060 yen after listing last month.
“The share price reflects investors’ views or outlook for the company’s business and earnings,” Hideto Ubui, a spokesman for System Information, said by phone yesterday. “When it rose to 6,060, I felt it had overheated, but the price has settled a bit recently to a level where investors can consider buying.”
Net income at venture-capital company Jafco Co. jumped seven-fold to 5.5 billion yen in the six months through September, buoyed by the recovery in IPOs. It invested in Reprocell and N Field before they debuted this year, according to Hiroaki Matsuda, a corporate officer at the company.
“The strong IPO market brought us very good earnings this year,” Matsuda said. “Inflows to our funds have been stable and executives at startup firms are getting more bullish.”
The Topix has moved in a narrow range since reaching an almost five-year high in May. Average trading volume on the gauge fell to 2.4 billion shares in October from 4.6 billion in May. With share gains from larger companies faltering, the current market environment is favorable for Japan’s emerging stocks, according to Nobuyuki Fujimoto, senior market analyst at SBI Securities Co., Japan’s biggest online brokerage.
“Investors who are at a loss for companies to invest in the current stagnant markets are rushing to IPOs for easy profit opportunities,” Fujimoto said. “The markets have been very comfortable both for investors and startup companies, and the situation won’t change any time soon.”