How much have you lost investing in Tiger Airways IPO?

In November 2015, Singapore Airlines (SIA) made an offer to acquire the remaining 44.23% stake in Tiger Airways for SGD450 million. The takeover, if materialized, would mark a sorry end to the listed company, which has seen its stock price plummeted from $1.50 at initial public offering (IPO) in 2010 to a low of $0.245. SIA is offering to buy out the remaining shares at $0.41.

Investors who remain faithful with Tiger Airways since its initial listing must have lost a lot of money. Suffice to say, the offer by SIA is definitely not attractive enough but then again, the offer of $0.41 represents a premium to the price range it was trading ($0.29 to $0.40) prior to SIA’s offer. So investors who bought during the IPO high of $1.50 need to ask themselves whether is it realistic for Tiger Airways to turn around its fortune and increase its stock price.

Being a budget airline, Tiger Airways has been battling stiff competition within the region against formidable rivals like Jetstar Asia and Air Asia. In 2008-09, the company lost almost $50 million but things got better after it got listed in SGX, with the company clocking in profits of $28 million in 2010 and $40 million in 2011. Probably because of this, IPO investors got seduced and buy into the Tiger Airways’ story. What they would not realize is that subsequently for the next three years, the company would go on to clock in successive years of losses.

The case of no-frills travelling is certainly compelling but somehow, the management of Tiger Airways has no solution to address the competition from Qantas’s Jetstar and Malaysia’s Air Asia. This has probably caused investors to depress Tiger Airways stock to a low of $0.245. Against this backdrop, the average consensus target price by market analysts is $0.354. So what SIA offered is actually a premium to the current market value of Tiger Airways.

The buyout offer has prompted Securities Investors of Singapore (Sias) to come out and requested SIA to up its offer. They claimed that the offer did not take into considerations of long term shareholders’ views. The President of of Sias also cited that SIA had previously paid $0.678 per share when it bought over Temasek Holdings 7% stake in 2013. They also pointed out that SIA had increased its stake by paying $0.565 from 40% to 55.8%.

However investors must take note that the business outlook for Tiger Airways is very different as compared to previous years. It is not fair to expect SIA to pay the same valuation as in 2013 when it was trading at $0.50 to $0.60. The market is efficient and will always price in the performance of the stock. Currently, the stock is worth only $0.28 to $0.35, or maybe even lower. So investors should be grateful that SIA is actually paying such a premium for a loss-making company.

I am not vested in this counter and has never ever bought this stock. But in this case, I think it is a good lesson for those who wish to dabble in IPO shares. This is a sobering reminder to investors the risks involved in IPOs and the potential in losing money investing in IPOs. The worst thing is applying the wrong investing approach of buy and hold for IPO stocks that do not have a good track record of delivering profits. You may end up losing even more of your investment as a long term investors.

To mitigate the risks involved in stock investments, always make sure that your portfolio is diversified and consists of different asset classes like gold and silver bullion, which tend to move in opposite directions to the stock market. In this way, your losses will be limited during stock market corrections.

Magically yours,

SG Wealth Builder