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Earnings quench IPO fires
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June 22, 1998: 10:11 a.m. ET
Once-sizzling debut market cools as disappointing results dampen spirits
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NEW YORK (CNNfn) - The once hot IPO market is being drenched by the a tidal wave of earnings warnings, threatening to douse the latest raft of new offerings to come down the pipeline.
Two out of every three companies that have projected their second-quarter financial results have failed to measure up to expectations, the worst percentage since First Call started tracking such forecasts three years ago.
That ratio of disappointments could climb into next week, which is likely to be the peak period for pre-releases of quarterly results, according to Chuck Hill, director of research at First Call.
However, while earnings disappointments have hurt IPO performance in recent weeks, underwriters appear undaunted. A staggering backlog of 187 prospective issues totaling nearly $20 billion are now waiting for their shot at the market.
Aurora Foods serves large offering
The high volume results from bigger deals. This week's highest-profile offering and one of the year's largest is the $311 million IPO of Aurora Foods.
Although the name may not be familiar, Aurora makes some of the most readily-recognized supermarket brands in the country, like Mrs. Butterworth and Aunt Jemima frozen breakfast products, Van de Kamp frozen foods and Duncan Hines baking mixes.
Goldman Sachs is set to price the deal at $20-$23, but the IPO Reporter consensus of money managers predicts that the stock is likely to move well into the mid-20s.
Renaissance Capital has chosen Aurora as its IPO pick of the week, betting on its management team.
After the offering, Aurora will have a market cap of $1.4 billion on $874 million annual sales and earnings of $25.3 million.
No 911 for SCC play
What's a week without another telephone play entering the market?
BankAmerica Robertston Stephens is set to price 3.3 million shares of SCC Communications at $13-$15. SCC provides 911 operations support systems to wireless and wireline phone companies, including WorldCom (WCOM), BellSouth (BLS), AT&T (T) and Sprint PCS (FON). Its software manages the data that enable a 911 call to be routed to the appropriate public safety agency and identifies the caller and location.
Sales have doubled in the past two years to $27 million in 1997, but the company lost $625,000 last year. Analysts consider its prospective stock market value of $145 million, 5 times last year's sales, fairly reasonable.
Hedge fund seeks minimal risks
A deal that could determine the value and popularity of hedge funds is Asset Alliance, the first publicly-traded company that owns a group of hedge funds. Although hedge funds are riskier than the traditional mutual funds, Asset Alliance hopes to minimize that risk by maintaining a diversified basket of managers.
However, just as hedge funds charge higher fees than mutual funds, don't expect a risk discount for the stock. Instead, Asset Alliance is positioned to generate more capital than mutual funds without having to turn in the same performance results.
The company is set to raise $92 million with a $12 IPO, giving it a potential market cap of nearly $300 million, about 25 percent of its total assets of $1.3 billion. That's a much higher value than the average mutual fund company's ratio of market cap to assets. Franklin Resources, for example, has a stock market value of only 6 percent of its total assets.
Cumulus follows Capstar
Hoping to emulate the recent successful launch of Capstar Broadcasting's IPO, Cumulus Media plans a $118 million offering to be priced at $15-$17. Cumulus is a radio operator in mid-sized and smaller markets that, like Capstar, intends to increase its presence by acquiring stations in the rapidly consolidating radio industry. 
-- by staff writer Bambi Francisco
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