Transcript No Slide Title

Zimmerman Adams International Ltd
Investors’ appetite for real estate
companies on AIM
A Practitioner’s View
18 February 2008
Zimmerman Adams International Limited
Registered in England and Wales No. 5136014; Registered Office: One Threadneedle Street, London EC2R 8AW
Authorised and Regulated by the Financial Services Authority
Member of the London stock exchange
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Contents
AIM – A Viable Alternative for Real Estate
How liquid can you be?
What makes a Company Suitable
ZAI Unique Qualifications
Case Study: DUPD
Appendix: Recent article
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AIM: A Viable Alternative for
Real Estate
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AIM: a viable alternative
Why do Foreign Companies consider AIM?
• Lack of credible local alternatives:
–
–
–
–
German market: In 2003 the Neuer Markt shut down—wiping out billions of
Euros of investors money
French market: very quiet and domestic
Italian market: very small
Other Europeans: not significant
• Natural appeal of Quoted Equity to the Small/Mid-cap company &
Owner/Manager
Advantages of AIM for foreign companies:
• The London Market represents a “Quality” brand for many continental
companies
• Liquidity, and far more liquidity than a few years ago
• Availability of Institutional Investors for Small caps
• Availability of Equity Research support for small caps
• Availability of market-making facilities (that work)
• Better pre-money valuations (compared to PE)
• Higher “public profile” (attracts many Owner/Managers)
• Quality Exchange, Admission, and Continuing Obligations standards
• Access to equity capital for current and future growth
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Are Russian property companies well
represented?
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•
Seven London-quoted Russian property companies, but only 3 on AIM
Compared to (on AIM):
–
–
–
•
Seven Balkan companies
Four Ukrainian companies
Total of more than 220 international companies (12.5% of all AIM companies)
There is clearly room for more Russian companies!
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Comparison of Property Companies
(Central and Eastern Europe)
•
•
•
Most Russian property companies are traded at a premium to NAV
Consider the success of Mirland Development and R.G.I. International on AIM
The shares of high geared Russian property companies appear to attract
investors: see the impressive performance of larger companies
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Why Invest in Russian Property companies:
“it’s the economy, stupid” ?
“It’s the economy, Stupid” (Bill Clinton 1992)
-i.e. The basic economic growth of the region, supported by sound fundamentals, outweighs
the many risks investors face
1.
2.
3.
4.
5.
6.
7.
Nominal GDP per capita of $14,000 in Russia (approximately 45% of Euro
area) but well ahead of other BRIC countries
S&P awarded Russia “investment grade” status in 2007
GDP growth forecasted at above 5% for next 3 years in the CIS countries
Robust economy will fuel corporate earnings in the medium term
The first phase of London IPO’s have inevitably been natural resources
but...
ZAI forecasts a growth of interest in mid cap property company IPO’s as
the property business in Russia matures and the population develops
sustainable disposable income to be spent on housing
There is now an emerging private equity market in Russia, which signals
the beginning of less risky business models
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Liquidity: AIM and “comparable” exchanges
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Availability of Equity Capital for
International Companies in London:
(Don’t take my word for it – look at the
empirical evidence)
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S
B
os
to
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E
ri
ch
ar
is
di
nb
gh
ur
rt
an
kf
u
st
er
da
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Fr
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P
Fr
an
ci
sc
o
Lo
s
A
ng
el
es
an
k
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on
ky
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nd
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ew
Lo
Equity assets under
management US$bn
Quoted Equity: Size of the Investor Base
3,000
2,500
2,000
1,500
1,000
500
0
Source: Thomson Financial
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Institutional Investors on AIM
Private
Investors
7%
Custody
Accounts
Market Makers
7%
1%
Directors &
Founders
28%
Institutions
57%
Source: London Stock Exchange
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Quoted Equity: The London Stock Exchange
(July 2007)
£ million
As at July 2007
Main List
AIM
Total
UK
Intl
1,944,800
2,571,100
108,067
4,623,967
Total No. of Companies Listed
1,268
333
1,673
3,274
New Equity Money Raised 2007
5,303
9,985
4,663
19,951
Further Equity Money Raised 2007
4,837
526
7,039
12,402
10,141
10,512
11,702
32,355
Market Cap.
Total Equity Raised (July 2007)
London
Source: Statistics, the London Stock Exchange and AIM
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Value of share trading,
$ bln
Liquidity: Value of share trading of foreign
companies in Jan-July 2007, $ bln
Euronext
OMX
Nordic
Deutsche
Börse
Nasdaq
NYSE
Group
London
SE
3500
3000
2500
2000
1500
1000
500
0
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A Record £15.7 bln was Raised on AIM in 2006
Money raised on AIM, £m
18,000.0
16,000.0
14,000.0
12,000.0
10,000.0
8,000.0
6,000.0
4,000.0
2,000.0
0.0
Source: Statistics, the London Stock Exchange and AIM
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What makes a company suitable ?
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Problems the investors confront
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Limited Track record of Company’s performance
•
Limited market/sector knowledge in the CIS
•
Don’t understand the legislation/regulation framework
•
Political undertainty multiplied by recent press articles
•
Quality of management (No MBA’s)
•
Reduced investor protection despite listing (City Code not applicable)
•
Complex tax arrangements may cause future issues (VAT optimisation
schemes, Offshore structures etc)
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Red, Amber & Green ...Risk in the CIS
KEY COMPANY IPO RISK
IPO ISSUE
RISK MITIGATION
Appropriate internal controls
and board to execute these
controls
Internal accounting function must
have IFRS expertise and
understanding
Corporate Governance
Board level is where it all starts
Financial Due Diligence
IFRS conversion is step one
Legal Due Diligence
Local lawyers are good sources of
knowledge prior to engaging "City"
firm
Local legal advisors can aid
timetable by analysing risks
IPO NewCo
Ensure appropriate government
consents where assets are regulated
Local and Federal regulations to
be adhered
Current Shareholders Base
Transparency of holdings
Corporate Structure
Suitability for public markets
Legacy Taxes
Extensive Tax Due Diligence
Other Liabilities
Extensive review of all companies in
Group
Rigorous due diligence on
actual owners
Adopt new structure in advance
of IPO and not on admission !
Approvals from local tax agency
of any new structures
Obtain appropriate warranties
KEY TRANSACTION RISK
CIS companies require extended
timetables - add 6 weeks
Local issues arise in each CIS
Advisory Team with local expertise country and region that require
tailored advice
Pre IPO Grooming
Russian Language Ability
Key tool to facilitate communication
and understand risk
Western Board Representaitives
NED requires local experience
Advise, Explain....Advise !
Avoid cultural ignorance and
appreciate local business
customs
Aid the review of local
documents and communicate
with regular staff
Investors take comfort from
appropriate NED
POST IPO RISK
Post IPO fatigue
Complacent to perform rigours of
public company
Advisors to closely monitor the
company to ensure standards
are maintianed
Compliance risk
Board fail to disclose due to
ignorance
Regular updates for investors
and regular meetings in London
Research and investor interest
Employ experienced PR firm to
educate investors of risks and
rewards
PR mandate
Political/Financial/Legal Risk
Change of political or financial
landscape
Educate investors continually
about the market and regulation
risk where appropriate
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What are Investors Looking for – in
property or any company?
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Fundamentally good companies
Solid Value propositions
Good Management
This means:
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Generally larger size Companies than domestic equivalents
Top-Line (Revenue) growth of 25-30% p.a.
At least EBITDA positive
Ideally PAT positive, or at least a clear indication of when profits will be
shown.
A clear value proposition targeting IRR’s in excess of 30%
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elements of a successful flotation: A CASE STUDYDragon Ukrainian Properties and Development PLC
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Country of operation: Ukraine
Country of registration: Isle of Man
Sector: property investment and development
Assets: Commercial and residential property projects
Investors concerns and expectations: Ukrainian elections in 2008,
construction supply side issues due to surge in demand for materials and
skills
•
IPO and Secondary placing:
•
Further developments:
– IPO Price: $2.02
– Secondary placing: $100m
– Market Cap: $208.0m
– Current share price: $2.20
– Capital raised: $205.1m
– Current market cap: $330m
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CASE STUDY- Dragon Ukrainian Properties
and Development PLC
£ pence
DUPD.L
140
135
130
125
120
115
110
105
100
01/06/07
01/07/07
01/08/07
01/09/07
01/10/07
01/11/07
01/12/07
01/01/08
01/02/08
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Key elements of a successful flotation
for an Emerging Markets Property Company
As illustrated by: Dragon Ukrainian Properties & Development (DUPD)
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Four key success factors:
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A strong market story, with reliable independent market research
available
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Strong management team – able to communicate with investors
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•
•
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good English language skills are essential
Experience with investor communications are essential
Credible independent Directors
Track record of management in the specific asset class in question
•
–
DUPD is focussed on an interesting and to large extent undeveloped market, with
significant upside potential
The Kiev market, for office, commercial, and residential, is a compelling story
There was (and is) quality independent research available on the market, from the
leading western property consultants
The management team must have credible experience in the specific asset class in
question, and the ability to show track record
Pipeline of projects
•
•
Investors want to understand the opportunities and risks of the types of projects the
company will invest in
The ability to get the money invested quickly in quality projects is a big factor
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ZAI Unique Qualifications
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ZAI’s Unique Qualifications
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ZAI is the only AIM specialist wholly dedicated to International Companies.
ZAI has a unique investor base: comprised of Institutions that specifically
invest in “foreign”, i.e. non-UK shares, via the UK markets.
Global distribution capability (European, Asian, Russian and American
investors).
In the CIS, the ZAI team acted as NOMAD and lead financial adviser
respectively on the floats of Dragon Capital and Rambler Media Group.
ZAI have a proactive strategy to promote AIM to small and medium-sized
international companies.
Russian speaking staff
Some of the ZAI Team’s current and former CIS clients, include:
Metromedia, Inc. (58 Telecom JV’s in
Russia and the CIS)
Rambler Media Group
Sistema
Lukoil
AzTelekom (Azerbaijan state telecom
monopoly)
Dragon Capital (Ukraine)
Teleset Networks
Turkcell (Fintur)
Kyrgyztelecom (Kyrgyz state telecom
monopoly)
Caspian American Telecoms
Uzbek GSM
Link Telecom (Macedonia)
Mobicell – Bulgarian GSM
Mobicom – Bosnian/Herzegovinian GSM
RTN – Russian Telecommunications
Network
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Awards
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2006/2007: 1st place by price
performance among Nomads
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2007/2008:
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4th place by price performance among Nomads
ZAI is among the best performing Nomads and Brokers by capital raised
Brokers’ performance:
Nomads’ performance:
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2007/2008 price performance of new issues
% 2007 top 20 Nomads by raised capital: average price performance of new issues
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Grant Thornton
Collins Stewart
Panmure Gordon
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KBC Peel Hunt
10
Landsbanki Securities
5
0
-5
-10
Cenkos
Deutsche Bank
Evolution
Numis
Smith & Williamson
JPMorgan Cazenove
-15
KPMG
-20
J&E Davy
Libertas Capital
-25
Seymour Pierce
-30
Dawnay
-35
Lazard
Zimmerman Adams
-40
Canaccord Adams
-45
Lehman Brothers
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•
In 2007 the average stock performance of the by ZAI floated companies was 25.54%
Average stock performance of ZAI clients since their IPOs is 73.02%
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Conclusions
•
The record shows: Foreign Issuers CAN benefit from AIM.
•
Such deals CAN be done, and money can successfully be raised, if
left to specialist firms.
•
Zimmerman Adams International have the expertise to do successful
floats
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Contact Details
Zimmerman Adams International
New Broad Street House
35 New Broad Street
London EC2M 1NH
United Kingdom
Ray Zimmerman
Aleksej Kotiasvili
Ph: +44 20 7060 1760
Fax: +44 20 7060 1761
E-mail: [email protected]
E-mail: [email protected]
Irina Lomova
Ph:
+7 (926) 492 3424
E-mail: [email protected]
Website: www.zimmint.com
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Appendix
Recent Articles
Non-UK listings on Aim increase
By Robert Orr
Published: January 30 2008 02:00 | Last updated: January 30 2008 02:00
The total value of international groups to list on London's junior
equities market in the past quarter exceeded that of domestic
companies for the first time.
The total market capitalisation of the 31 non-UK stocks that floated
on the alternative investment market (Aim) in the fourth quarter
of 2007 totalled £1.9bn ($3.8bn) compared with £1.7bn for
UK listings, according to figures from Deloitte, the professional
services firm.
The number of companies joining Aim almost halved to 254 last
year, while the total value of both UK and non-UK companies
listing in the past quarter was well down on the same quarter of
2006. By contrast, the amount raised in the secondary market
held up.
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