The MYOB grey market is open

MYOB CEO Tim Reed.

Ahead of MYOB’s IPO which is being billed as one of the biggest floats this year, IG has launched a “grey market” around the indicative price of the software firm’s shares.

MYOB is due to list on the Australian stock exchange on May 4 when its private equity owner, Bain Capital, opens the company up to the market. The offer will dilute Bain’s holding from the current 95% to 57% (midpoint of the indicative range).

MYOB is valuing the company at an enterprise value of between $AU2.34 and $AU2.69 billion, or 14.5 to 16.8 times forecast EBITDA for the coming financial year.

The company is expecting to raise between $AU831.7 and $AU833.8 million based on an indicative price range of $3–$4 a share.

Bain won’t sell any of its existing shares at the time of listing but according to IG Markets: “talk on the street suggests Bain Capital will look to sell out of MYOB in early 2016 if the share price is at a 20% premium to listing.”

Priced by IG, the grey market is based on where its clients believe the closing price of the stock will be on May 4. The market essentially enables traders to trade CFDs on MYOB stock before it lists.

It can also be a good gauge as to whether the float is over- or under- priced.

The MYOB grey market was opened in full on Thursday, just before the long weekend.

Here are IG’s initial thoughts.

“The indicative price looks relatively attractive, as the price point suggests MYOB will be trading at a price to earnings ratio (P/E) of 14.5 to 16.8 times based on the EBITDA estimates of $160.7 million for FY16 (a 14% increase on FY15) MYOB estimates revenue in FY16 will be approximately $336.4 million for an expected NPATA FY16 of $90.7 million – a jump 21% on FY15 numbers.

These estimates put MYOB in a different league to its nearest competitor in Xero.”

Xero is yet to turn a profit and its earnings remain negative, which is common for growing SAAS companies, as the cost of customer acquisition and development are heavily front-loaded.

“The [Xero] share price value is more down to future expectations rather than current operations and shareholders are going to have to wait until FY17 on current estimates to see NPAT turning positive at XRO,” IG said, adding the MYOB float would give investors an alternative.

“MYOB on the other hand will hit the market with a proven track record and its push into cloud systems will give those a little concerned about Xero’s massive price premium and risky future earnings an attractive alternative in the IT space.”

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