Net losers do $28.5m

Author: By KATRINA NICHOLAS

Date: 19/01/2000

Investors in the second and third largest Internet floats have discovered the dark side of the

speculative market with $28.5 million evaporating in a matter of days after the dismal debut

yesterday of Isis Communications.

Shares in the self-styled ``new media" group, Isis Communications, slumped to 71c, 29 per cent

below the $1 apiece they were sold for in the $55 million float.

Eisa, an Internet service provider and hardware seller, which listed on Tuesday after a $57 million

float also at $1 a share, ended at 78c.

The two companies raised $112 million in cash that was effectively worth $83.5 million yesterday.

The poor showing has prompted a rethink of upcoming technology floats, with several corporate

advisers warning the market has been overwhelmed.

``I think you are going to see the market for Internet floats go into hibernation, particularly these

venture capital type projects that nobody has ever heard of before," one corporate adviser said

yesterday.

One casualty emerged yesterday when ex-diamond-explorer Ocean Resources, now Bambuu, called

off a $3 million issue to fund the purchase of goalmap.com, a lifestyle planning Internet site.

But other firms are proceeding with issues subject to major falls in the technology bellwether, the

NASDAQ index.

Newspaper group John Fairfax Holdings is in the final stages of deliberations over floating off its

online business. Fairfax Interactive's offer was expected to eclipse Isis and eisa and come in as the

second largest behind the $160 million ecorp float. Ecorp shares ended at $1.99 yesterday versus

their $1.20 issue price and $2.82 high.

The Isis float, fully underwritten by D&D Tolhurst and Lonsdale Securities, closed two weeks ago. The

failure to list on its scheduled date last Friday lead to speculation of difficulties subsequently denied

by the underwriters.

The slump did not surprise some commentators who thought Isis overpriced. At $1 a share Isis was

valued at 23 times its 2000 earnings before interest and tax. By comparison, Coles Myer, which is

about 60 times larger than Isis, has an estimated price-to-earnings ratio of 18 times.

``This shows that brokers need to understand that these Internet companies need to be priced more

competitively," equity analyst with CPS Capital Group (www.cpscapital.com.au) Mr Tony

Cunningham said.

``The market will always determine the right price and you can't price these things like you could a

few months ago."

Isis's shares opened trading at 68c and briefly struggled as high as 78c.

The selling primarily came from small stockbroking firms including Barton Capital, Lodge & Partners,

CIBC, Patterson Ord Minnett and Austock Brokers.

D&D Tolhurst, the float's co-underwriters, were strong net buyers, scooping up about 800,000

shares in an effort to defend the stock.

William No all private client adviser Mr John Wilson said the current depressed market sentiment

had cinched Isis's downfall.

``Internet stocks have become a little out of favour of late due to concern that some have no

earnings but also because the US market has come off," Mr Wilson said.

``And in any downturn, those companies with no earnings behind them will suffer the most."

Tolhurst Corporate's adviser to the float, Mr Michael Ramsden, said it had been oversubscribed by

about $3 million.

``We sub-underwrote most of it and placed some stock with various other people in the

marketplace."

Isis managing director Mr Adam Radly blamed the ``disappointing" performance on market

ignorance.

``The challenge now is to educate the market to allow it to differentiate between Isis and other

Internet stocks," he said.

Isis forecasts operating revenue of $9.1 million for the half year to December 31, rising to $67 million

next calendar year.

For the current half year a $10.62 million loss is predicted.

CPS Capital's (www.cpscapital.com.au) Mr Cunningham said IT services company Powerlan, also

listing this week, had performed better because it contained ``less start-up".