This time next week, MYOB Limited (ASX: MYO) will be making its long-awaited return to the ASX, but it is unclear just how strongly the accounting software provider will perform.
Based on dates provided by MYOB last month, the final price of the shares will be determined by Thursday, while investors will find out the price payable on Friday. MYOB’s prospectus said that investors would pay somewhere between $3 and $4 per share, which would depend on the level of interest attained from investors pre-IPO (initial public offering).
According to reports from the Fairfax press, MYOB’s growth story was well received during its three-week roadshow, which could suggest the shares will sell at the higher-end of the indicative price range.
Furthermore, Fairfax also highlighted that Bain’s most recent IPOs have generated an average gain to date on issue price of nearly 100%. This could play a big role in the level of demand recognised for MYOB’s shares and could create a lot of hype for the stock, as was the case with Medibank Private Ltd (ASX: MPL) after its IPO late last year.
Will the IPO be a dud?
MYOB claims to have 1.2 million customers, 716,000 of which are currently non-paying (users of its desktop products which do not pay ongoing fees). A big part of the company’s growth strategy is to convert those customers into paying users of its cloud-based systems, which could generate an enormous increase in revenue and overall profitability.
The problem is there is absolutely no guarantee that customers who do choose to switch to a cloud-based product will do so with one of MYOB’s products. While some could switch over to Reckon Limited’s (ASX: RKN) products, others seem destined to convert to the fast-growing XERO FPO NZ (ASX: XRO) (“Xero”), which is making leaps and bounds in its quest to become a global leader in the accounting software industry.
Xero is a New Zealand-based company which is not only becoming an increasingly popular search topic on Google across the globe, it is also rapidly increasing its customer count. While short-term pundits will likely be scared off by Xero’s climbing net loss, longer-term investors will recognise that it is increasing its spend on marketing and software development, which could help it to become much bigger than it is today.
Although MYOB might seem like the ‘safer’ option, given that it is already well established and profitable, it seems unlikely to be able to generate the levels of growth being recorded by its rival across the Tasman. As such, an investment in MYOB early-on could prove costly in the long-run, even if it did sell at $3 per share (on a pro-forma 2016 financial year price-earnings ratio of 20.9 times).