It is back to business for US initial public offerings and time to see if the market for new issues can pull out of its end-of-summer slump.
August was tough on IPOs, with numerous deals pricing below targets or being postponed. Despite the rocky conditions, companies continued to announce their intentions to go public, and those prospective deals are now showing up on September's calendar. That could make this month the busiest September for IPOs since 2000, according Dealogic.
In a positive sign, this week's two IPOs, while small in size, rose in their debuts. Cemetery operator StoneMor Partners priced at the top end of its estimated range, and Bimini Mortgage Management priced close to the top of expectations. Hoping to continue the momentum and take advantage of positive industry trends this week are fingerprint ID company Cogent Inc and poultry company Gold Kist Holdings Inc.
Cogent provides fingerprint identification systems to the government and law enforcement agencies, allowing them to compare a set of fingerprints to a database containing millions of fingerprints in seconds. Shares of companies involved with biometrics, technology that identifies individuals based on biological traits, have piqued investor interest in the current security-conscious environment. Shares of Identix, one of its competitors, are up 40 percent this year.
For the first six months of 2004, it reported net income of $12.5 million on revenue of $32.5 million, up from net income of $575,000 on revenue of $9.2 million a year earlier. It did warn in its regulatory filings that its auditors have reported several "material weaknesses" in its internal controls, such as finding its accounting system was not sufficient to support a public company.
Cogent said it put procedures in place to address the weaknesses, but at the time of its IPO, it would have had limited operating experience with the changes.
Also set for next week is Gold Kist, the third largest chicken company in the United States behind top producer Tyson Foods Inc and Pilgrim's Pride Corp, with fiscal year sales of $2.3 billion. "This has been actually the strongest year for poultry profitability in about 20 years," said Todd Duvick, a research analyst with Banc of America Securities.
Poultry producers' earnings have been helped by higher chicken prices. Gold Kist's earnings for the fiscal year ended June 26 were $110.9 million, compared with a net loss of $51.5 million a year ago.
Higher chicken prices were partially offset by higher costs for corn and soybean meal, which are key feed ingredients. However, corn and soybean meal prices have dropped during the summer because analysts now believe US farmers will harvest a record large corn crop this fall and a large soybean crop.
Gold Kist trails Tyson and Pilgrim Pride in sales by significant margins. For example, Tyson, which also has beef and pork operations, reported chicken sales alone during the nine months ended June 26 totalled $6.08 billion. Pilgrim's Pride reported sales for the nine months ended July 3 of $3.9 billion.
Gold Kist has filed to offer 18 million shares in the estimated price range of $14 to $16 per share.
IPOdesktop.com analyst Francis Gaskins said the deal looks reasonably priced, with Gold Kist having a price-to-earnings ratio of 7, compared with a ratio of 9 for Tyson.
The Atlanta-based company, which accounts for about 9 percent of the chicken market, said the IPO is in connection with its conversion from a co-operative marketing association to a for-profit firm.
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