While Initial Public Offers (IPOs) continue to boom in 2015 it remains a challenge for investors to pick those that offer a favourable outlook. Hazer Group Limited aims to raise $5m and intends to list on the Australian Securities Exchange (ASX) on the 4th December. In its prospectus Hazer Group recognises that it is an early stage company and the success of its business model is highly dependent on technical success of its intellectual property as well as future funding. As an early stage company without any significant revenue streams, how promising is the listing for IPO participants?
Hazer Group focuses on advanced materials and is working towards commercialisation of its so called ‘Hazer Process’. It has intellectual property rights to this technology which was developed at the University of Western Australia. The process allows the production of hydrogen gas from methane with negligible carbon dioxide emissions. The difference to other production techniques is the co-production of high purity graphite. The company has currently three pending patent applications.
The majority of the proceeds raised from the initial public offering will be used to scale-up and commercialise the ‘Hazer Process’. Management aims to create shareholder value by developing laboratory equipment and creating a pilot plant that demonstrates the process. Hazer’s management team has a fair track record in the industry as board members were previously involved in the development of technologies and capital market funding on the ASX.
The technology has not reached sufficient scale to generate revenue or earning and will most likely not be able to do so in the next 12 months. So what will potentially drive the share price in the absence of revenue? It is not uncommon for companies to list at a pre-revenue stage but the market needs to see evidence that the company is ‘moving forward’ in order to drive the share price higher. Investors who have participated in the raising will hope for technical breakthroughs, the establishment of partnerships and interest of the general public. However, Hazer is reliant on external funding to finance its research and development program and there is no guarantee that ongoing funding can be secured.
The ‘Hazer Process’ as such is unique as it produces hydrogen gas and high purity graphite in a single process. Management seems to have a genuine go at commercialising the technology but whether that is going to be enough to create shareholder value is yet to be seen. In the absence of revenue and with the technology at a very early stage of the cycle, the initial public offer is lacking catalysts.
Company: Hazer Group Ltd
ASX Code: HZR
Shares on Offer: 25million
Listing Price: $0.20
Market Capitalisation: $12.2million
Listing Date: December 4th
Author: Simon Herrmann
Nov 25, 2015
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.