I’m curious what some of you have done with relation to the IPO. Is it a general practice to go IPO as soon as possible? Do you wait for your credit rating to be AAA? Or do you decide not to do it at all?
I know this is a blanket statement but how much do you generally hope to make from an IPO? Currently I’m working on the structure of my company. Right now it’s showing a credit rating of CCC but that will be going positive pretty soon. My flights are already profitable and I’ll be getting another $1mil back on a returned lease.
the sooner you go public, the sooner you get a financial boost. If you wait longer, your airline will (hopefully) be worth more money and more shares will be created. So you hope to raise more money.
When you go public, you can ask friends or alliance members to buy shares. These people might buy shares to please you, in which case they won’t mind that your credit rating is low. The general public however will probably check out the published information. A low credit rating or low profit margins won’t tempt possible investors.
But you just started your airline… a low credit rating is normal during the first few days: you spent a lot of money and you haven’t yet made any profit. You have to wait at least two weeks before you can go public with your airline. By then, your rating should be okay.
My airline is a holding, so I can’t say how much fresh money you can attract from investors.
[font=arial, verdana, tahoma, sans-serif][size=2]No one will be interested in your IPO unless you show a very strong profit (they probably won’t care too much about the credit rating). I generally won’t look at a stock unless it generates a profit of at least 12% of its equity (so around 1.2 mill for a brand new company). You’ll be selling a 20% stake in your company, and depending on the how many investors subscribe to the IPO I believe you’ll make 10-40% of your current equity. After this you’ll have to give away 15% of your profits away as dividends.[/size][/font]
Thanks this is all very informative. So when you’re saying 12% you mean to say a company of $10mil equity making $1.2mil per week? That’d be pretty good!
return on equity is an excellent indicator… if the airline is young and if the only assets are leased planes. Allow me to give an example.
Moskva Express (Tempelhof server) operates a fleet of 480 aircraft and transports 1.5 million passengers per week. It’s net profit margin this week was 22%, and divident per share was 112 dollar. If you invested when that airline went public, your weekly divident is bigger than your initial investment. And if you would sell your shares today, you would get 160 times what you paid for them. I have seen worse investments
Which is why, at its current price, I would recommend against buying Moskva Express stock on Tempelhof. Since stock price is tied to within 10% of actual equity value, you’d get very little appreciation and a tiny dividend relative to the share price- bad buy. I’m willing to bet that when they went public their ROI was much higher, otherwise they would not have grown so big.
I totally agree with you. I would even recommend against buying shares of any company that is one year old. As you say, stock prices are tied to the equity value, That means you get very little divident compared to your investment. If you buy Moskva Express shares today, your weekly profit (profit on your investment) is only 0,7% per week. Plus, companies can grow very fast during their first 6 months. After that, things start to gradually slow down.
I only wanted to point out that return on equity is an excellent indicator for a young airline that goes public. Later on, return on equity is one of several indicators that tell you if an airline is sound and profitable.
As for buying shares in general…
… Investing in your own airline (leasing planes for yourself instead of buying someone else’s shares) is always more profitable.
… Once you have bought shares, it may be very difficult to sell them.
… Check the airline’s location: a company in the US has more potential to grow than a company in Cuba.
… Check the airline’s fleet: a fleet of turboprops may be very profitable today, but much less profitable in a competitive market.
… Think twice before you buy shares when more than 100% of the shares are subscribed.
And to those who plan to go public…
… advertise ! People don’t buy a fixed number of shares, they invest money and get shares as far as they are available. In other words, if subscriptions are 50%, you may (for example) raise 2 million. If subscriptions are 100%, you get 4 million. And if subscriptions are 150%, you get 6 million. For the same 20% of your airline.
