After 35 years of stockbroking for some of the biggest houses and investors in Australia and the UK, the Secret Broker is regaling Stockhead readers with his colourful war stories — from the trading floor to the dealer’s desk.

Every so often a runt of a stock comes along.

You end up long and always underwater and when some good news comes out they rally but never enough to give you a profit.

On bad days they fall more than others and on good days they never quite seem to rally as hard as anything else.

One of those stocks is APM or APM Human Services International Ltd as their official title goes by.

When you read their announcements, they always use fluffy words which do not mean much to the market. But for government employees, they slot straight in.

All of their announcements proudly pronounce at the bottom of them that they have 1,600 branches internationally and that they employ over 15,000 people worldwide.

Now that may resonate with government departments but not with the market.

Charlie Munger would be spinning in his grave if you presented to him all of the numbers that spin out of the APM machine.

On Thursday, their stock fell by over 39%, when reality and not spin, finally hit home.

Their ratio of employees/offices worldwide/EBIT figures just did not live up to their valuation or their market hype/expectations.

The company IPO’d at $3.55 a share for a valuation of $3.25bn and closed on their first day down 6.2%. When a big company doesn’t close above its IPO price, it normally means it will take a long time to ever rally above it.

So, from day one, its valuation came in at 6% lower and then fell another 6% over the next few days.

Now, I don’t want to burst a few bubbles here and if you run some Australian equity funds, you may even want to look away.

In the world of IPOs and placements, funds have to take the good with the bad.

If you are a merchant bank and offer a few mixed deals throughout the year to your clients, then they have to take them all.

The good, the bad and the ugly.

Each one of them.

If they don’t, then they will be pushed down the meet and greet list and the allocation list.

So normally, when an IPO listing falls, it’s those funds just liquidating.

Get out for a 6% loss on day one versus a listing that jumps 30% on day one.

It’s a no brainer.

If a broker is involved in the IPO, then they won’t get the sell and get out of jail order to put into the market, as it is not a good look for the house broker to be a seller.

Being a buyer is okay; being a seller is not

It was interesting to read in the week how a couple of fund managers running a long/short fund had shorted Nuix on day one, even though the hype meant their big clients were asking them if the fund went for any.

They just had to keep quiet, as their research meant that they saw it as overvalued and in fact they were shorting it big time.

They went through a bit of pain before their shorting gain, as the honeymoon period kept things rosy, market-wise.

As for APM, recent whispers were it is just waiting to secure some more long term government contracts worth A$11bn or so and then the stock will take off.

All of their senior management are ‘believers and followers in the stock’ – not suprising as it’s safe to assume some are long of some long term incentive options.

When I was doing a bit of background, I discovered that some of those incentive staff options run till the year 2037!

I have never seen this before and in a type of company that is just service oriented (it doesn’t produce anything in the real physical product world) you can see why all the senior managers spend all day humming the Monkees. They’re locked in!

‘I’m a believer,
I just couldn’t leave her if I tried’

Here is a chart of how APM performed from when they first listed. You can see the waves that I talked about:

Their current liabilities (including leases) of A$800m, now exceed their current market valuation, at 82c of A$720m.

In my experience, they will have to dig deep and find an unpolished diamond in their kitbag.

It could be all the data that they produce from all of their clients or a bit of software that they have developed, which may be useful to other industries.

Who knows? What is obvious to the market is that they are going to have to tweak their current offerings if they want to garner any confidence back into themselves.

Let’s hope that, for the sake of their 15,000 employees, they do find that diamond.

And it’s not a synthetic one, covered in fluffy words.


The Secret Broker can be found on Twitter here @SecretBrokerAU or on email at [email protected].

Feel free to contact him with your best stock tips and ideas.