Consumer antivirus provider Avast (AVST) looks to be on the verge of firming up details of its planned stock market debut with reports suggesting it is close to finalising the IPO (initial public offering) price. The official guidance is for the flotation to happen in early May.
Some observers even believe the shares could jump in price once they start trading, should Avast price its IPO at the typical 10-20% below intrinsic value which often happens with stock market listings.
‘Assuming the IPO is successful, there is scope for the shares to move dramatically once they’re on the market - it’s certainly a stock everyone will be watching on day one,’ says Indraneel Arampatta, an analyst at the IT consultancy Megabuyte.
Shares explained in November 2017 how retail investors often miss out on chunky IPO returns because they rarely get a chance to buy at the IPO offer price, instead only getting their first opportunity once the shares start trading on the open market.
INDICATIVE VALUATION GAP
Czech Republic-based consumer cyber security business Avast owns the popular AVG brand of digital security tools. It hopes to raise $200m from investors, or roughly £145m at today’s FX rates.
These fresh funds may be struck at a share price somewhere between 250p and 320p, according to media reports, implying a market capitalisation between $3.5bn to $4.5bn (£2.5bn to £3.2bn).
Taking into account purported net debt of $1.35bn (£970m) suggests a rather wide valuation range of between 11.8 to 14.1-times trailing earnings before interest, tax, depreciation and amortisation (EBITDA).
This is a pretty wide valuation range, albeit an indicative one at this stage, which leaves investors still to an extent in the dark.
The broad gap in possible valuation is presumably because Avast wants to seed demand for the flotation without risking scaring off potential investors.
STOCK MARKET THE OBVIOUS NEXT STEP
It also may indicate the importance of a stock market listing to its future growth ambitions. Experts widely predict significant investment into the business over the coming years so easy access to capital markets looks a must.
‘The maximum indicative valuation looks to us like a good reflection of the operating profile of the business,’ says Megabuyte’s Arampatta.
‘Much like Sage (SGE), Avast is a relatively mature software business aiming for high single-digit organic growth with high margins and strong cash generation.’
