Shout & Ask Ltd (SAA Ltd) is an online information content service provider. SAA Ltd had its Initial Public Offer (IPO) of shares on the 1st of February 2019. The company had 20,000,000 shares on issue before the offer. The share offer was underwritten by Sky-High Investments, at no cost to the company. The share offer consisted of 5,000,000 new shares (no shares were sold by the existing shareholders in this offer; also, no existing shareholder participated in the IPO - i.e. existing shareholders did not buy any additional shares through the IPO). The offer size (number of shares sold in the IPO) represented 20 percent of total shares on issue after the offer. The share offer (subscription) price was $2.00 per share. Subscriptions received by the underwriter at the offer close date were for a total of 5,000,000 shares. Market share values were as follows:

First trading day close price was $2.40.

First year anniversary share price was $2.90 (in the corresponding period the market index return was 10 percent, while the company's relevant industry index provided 12 percent return in this period). Company share systematic risk (beta) has been estimated at 0.9, while the market (industry) index beta is estimated at 1 (1.1).

Based on the above scenario, insert correct word(s) to complete each statement below:

From the perspective of the original owners, this IPO is

Answer 1

Choose...

Underpriced

Correctly priced

Better-off

No

Worse-off

Overpriced

Yes

Neither better-off or worse-off

Considering the IPO's characteristics and the first trading day's closing share price,what is the wealth effect on the original owners (should they be considered to be better- or worse-off by the end of the first trading day?

Answer 2

Choose...

Underpriced

Correctly priced

Better-off

No

Worse-off

Overpriced

Yes

Neither better-off or worse-off

One year after listing, was this IPO's post-listing day returns performance typical of the IPO returns that we observe historically?