Japan’s world-beating stock rally is sending Jafco Co., the country’s biggest venture-capital firm, to the best gains on initial public offerings since the technology bubble at the turn of the century.
Companies taken public from April to September gave Jafco an average return of 24 times its investment when they started trading, the biggest since 2000, according to Hiroaki Matsuda, a corporate officer at the firm. Start-ups it backs that will list shares in the second half of the fiscal year, from October through March, are likely to quadruple to about 16 from four in the first, he said.
Jafco’s profit soared in the six months through September as Japan’s best share rally in four decades gave companies confidence to raise capital and boosted investor appetite that sent every IPO but one higher on its first trading day this year. The jump in listings planned by Jafco in the second half suggests a possibility for further earnings gains.
“The good conditions we saw in the fiscal first half are continuing for now,” Matsuda said in an interview in Tokyo on Dec. 6. “Corporate executives are becoming bullish and we’re seeing an increase in new funds being set up.”
The Topix index gained 62 percent in the four quarters through September, the steepest rally since the 12 months ended March 1973. About 60 companies have gone public in 2013 or plan to do so by year-end, the most since 121 offerings in 2007, according to data compiled by Bloomberg. All but one IPO rose on its debut this year, with an average advance of 128 percent on starting trading, data compiled by Bloomberg show.
“Exiting investments through IPOs makes big returns possible” for Jafco, Matsuda said.
Reprocell Inc., a stem-cell medical research company Jafco invested in, started trading at 17,800 yen on the Jasdaq market in June, up more than fivefold from its IPO price of 3,200 yen for the biggest advance on listing since 2006.
A total investment of 1.5 billion yen in Internet-security provider FireEye Inc. and health-food company TCI Co. swelled to 31.6 billion yen when they listed on the Nasdaq market in the U.S. and Taiwan stock exchange, respectively, according to a company filing.
Jafco’s revenue almost tripled to 15.7 billion yen in the six months through September, while operating income jumped 14-fold to 8.1 billion yen, the company said in a statement in October. Unrealized gains on investments in the fiscal first half were 25.9 billion yen.
“It’s our best since the six months ended March 2006, when there was a very active IPO market,” Matsuda said.
Listings in 2006 rose to 188 from 158 the year before, the most since 203 Japanese companies went public in 2000 and a recovery from just 19 debuts in 2009 during the depths of the financial crisis, according to Takashi Nishibori, senior adviser at IPO advisory firm Finantec Co.
Listings in the second half of fiscal year 2013 include Eneres Co., a Japanese energy-data processing company that started trading at more than twice its IPO price in October. ZIGExN Co., a job-search and dating services provider, almost tripled when it went public in November. Overseas, Jafco also invested in microblogging-website operator Twitter Inc., which surged 73 percent when its shares started trading last month.
Shares in the 40-year-old investment company climbed 114 percent this year, compared to a 45 percent increase for the Topix index. Jafco reached a 6 1/2-year high of 5,820 yen on Dec. 3. Of the five brokerages covering the stock, two rate it a buy, two urge investors to hold, while one recommends selling. Mizuho Securities Co. raised its target price for the company to 6,700 yen from 6,100 yen on Nov. 28.
Not everyone is confident Japan’s IPO boom will continue after the TSE Mothers Index of smaller companies gained 121 percent this year.
The way some mediocre companies are priced “signals the endgame will be on us soon,” said Tatsuro Nigauri, a small-cap fund manager who helps oversee 5 trillion yen at Daiwa SB Investments Ltd. “I gave up buying some IPOs this year.”