Hotel group Mantra is one IPO to keep an eye on, says Pengana.
The present IPO cycle may be running flush with opportunities but portfolio managers at the Pengana Emerging Companies Fund believe only six have been worth the effort.
Pengana portfolio manager Ed Prendergast said his team had analysed more than 50 companies that had listed on the main Australian and New Zealand stock exchanges, but they ruled out building positions in all but a handful.
That includes diversified education operator Intueri, media monitoring company iSentia, global billing software maker Gentrack and hotel operator Mantra Group.
"All four are trading above their issue price, and have strong business models which allow room for strong medium-term growth," Prendergast said, adding that Pengana had also bought stock in automotive parts maker Burson Group and credit company Veda Group.
He said what made a good float was similar to what made a good stock in general.
"They have to be correctly priced and be good quality businesses. You have got to understand the motives as to why they are selling. They have got to be clear and frank. They also need to be appropriately priced and be well managed, with scope for growth well into the medium term."
He said "plenty more" companies were likely to list on the Australian sharemarket in the second half of this year, including Healthscope – which is expected to be the biggest float since 2009.
"Healthscope is one that we will look at. It is a very stable business that grows mildly with an ageing population.
"I think we will also start to see more entrepreneur-type IPOs to come as well, instead of mainly private equity," Mr Prendergast said.
The Pengana Emerging Companies Fund, which has recently been returning excess cash to investors, returned 18.9 per cent last financial year, outperforming the S&P/ASX Small Ordinaries Index by 5.8 per cent.
In the latest Pengana Emerging Companies Fund quarterly review, published on Monday, the fund goes into detail about what it likes about the six IPOs it has invested in over the past nine months.
Gentrack, trading at $2.38. "Given the critical nature of the product, customers are reluctant to switch to newer providers without the track record of Gentrack. The company has grown from its NZ base into the global market and is now a key player. Deregulation of energy and water markets provide opportunities for long-term growth, especially in Australia."
Intueri Education Group, trading at $2.50. "Government subsidies apply in many of the courses, and the fragmented nature of the industry provides the opportunity for further acquisitions at reasonable prices."
iSentia, trading at $2.37. "Barriers to entry are high, as new entrants struggle to provide the breadth of coverage as Isentia, which has operated for 32 years. As media has become more distributed, that is more disparate sources especially social media, demand for Isentia’s services has risen, and the barriers to entry have increased."
Mantra Group, trading at $1.83. "The key to longer-term growth is adding new rooms whether by acquisition or greenfield developments. The company has a strong central service capability, which can handle a larger portfolio over time."
Veda Group, trading at $1.94. "Barriers to entry are very high as the major lenders in Australia realise the quality of default data is highest if all information is shared via one bureau. The company has shown 10 per cent revenue growth for over 20 years, and did not suffer during the GFC. Recent legislation has expanded the amount of data available to lenders, which we believe will accelerate revenue growth for Veda."
Burson Group, trading at $2.14. "We see a long-term growth opportunity as the majority of the [automotive parts] market is served by small operators who do not have Burson’s buying power and struggle to provide same-day delivery on such a large range of parts."