The market went south yesterday and the shares in BHP spin-off South32 (S32) went north at a great rate of knots as Monday’s nervous nellies turned into Tuesday’s pack of bulls.
In fact the strength of the rebound in S32 shares made a mockery of the first day sell-off and the silly reporting about a weak performance by media who don’t understand the dynamics of mega floats and spin-offs.
When one group of shareholders are forced sellers, as many are in the UK, companies floating or spin-offs face a day or so of selling pressure which depresses the early prices.
Yesterday seems to have seen local fund managers emerge to start building their stakes in the stock to reach index weighting.
An estimated 196 million or so shares will have to be bought by super funds and other big investors (such as listed investment groups AFIC and Argo) to maintain the index weighting.
The 43 point fall in the ASX 200 yesterday made the 12% rise in the value of S32 look even better,
Upbeat research notes from a number of analysts also helped improve sentiment for Australia’s third largest mining company by market value.
The stock debuted at $2.13 a share on the ASX on Monday but closed at $2.05 by the end of the day after reaching a high of $2.20.
Yesterday it jumped 12.2% to close at $2.30, after peaking at $2.34. More than 97.2 million shares were traded (most on the buyside), well down from the 156 million plus on day one.
JPMorgan valued the shares at $2.95, RBC Markets at $2.60, followed by Shaw Stockbroking at $2.26 and Citi has a 12-month price target of $2.50.
At the close yesterday, South32 had a market capitalisation at more than $12 billion, up from the $10.9 billion at the close on Monday.
South32 also listed on the London and Johannesburg stock exchanges. Most of the market activity is in Australia, which is its primary listing.
