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With the book building of Pakistan’s first IPO in more-than-a-year coming to end yesterday, The Organic Meat Company (TOMC) is all set for retail offering due next week. How might the stock perform at the bourse and should small investors queue in to get a stake in TOMC are questions occupying many retail investors’ circles.

TOMC is a small IPO to begin with; 40 million shares are chip change. It is not a surprise, therefore, that the stock was oversubscribed in the book building process; bids for 68 million shares were received against 30 million shares scheduled to be sold via book building. It’s so small of an IPO that some big institutions had initially decided to shy away from the book building process because their fund managers didn’t want to go through the hassle of pitching the scrip to their investment committees.

Despite that, however, the stock was able to attract higher-than-expected bids yesterday. The bourse’s book building webpage suggest that more bids were received on the last day of book building (yesterday) than the first two days combined. The strike price landed at Rs20/share against the floor of Rs18/share, where some 8 million shares were bid at Rs22/share – being the highest bid rate by yesterday’s close.

That the strike price landed 11 percent higher than TOMC’s floor price comes as a surprise given uncertain outlook on account of Covid-19 conditions and given recent trends in IPOs. Since 2018, unlike the years before, IPOs have not been attracting enough enthusiasm to lift strike price to the level of its ceiling. In fact, strike price in the last two IPOs was only 2 and 5 percent above the floor price, whereas the two IPOs before that were transacted at the floor price. This lack of enthusiasm perhaps stems from the fact that IPO investors seem to have burned their fingers in recent years.

Save for a few exceptions, where Systems Limited particularly stands out, most IPOs in recent history have significantly underperformed the market, or in some cases barely yielded a return over and above the benchmark index, which doesn’t inspire a lot of confidence.

Whether or not TOMC will face similar fate in a few years, that’s for retail investors take a bet on based on corporate and economic fundamentals, some of which were discussed in BR Research’s recent coverage of the company. However, if past trends are any guide, IPO stocks tend to spike upwards in the first few weeks of trade. Good luck hunting! (Read also: IPO files: Is there any meat in TOMC? Jun 24, 2020 & interview with TOMC’s CEO in our Brief Recording section Jun 29, 2020)

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