SURFSTITCH DUNKED, BUT BROKERS SEE SOME UPSIDE

THE Gold Coast's newest listed company, SurfStitch (ASX: SRF), has taken a dunking in its first few days of trading on the Australian Securities Exchange but it could yet surprise investors, says one broker.

After a relatively steady debut on Tuesday, SurfStitch shares have traded as low as 90c and only briefly rose above their $1 issue price on Wednesday.

The tepid start for the global online surfwear retailer indicates the market is holding back judgement on the company, and the ambitious growth plan it has presented since breaking free from former majority owner Billabong (ASX: BBG) earlier this year.

SurfStitch is forecasting another loss for FY15, despite revenue growth of more than 30 per cent to $95.2 million expected this year.

The forecast statutory net profit after tax is $11.1 million, which compares with NPAT of $11.2 million in 2014.

However, on a pro-forma basis, the figures are more attractive at a $100,000 net profit in FY15 and EBITDA of $5.1 million.

The low-profile share float, planned by company founders Lex Pederson and Justin Cameron after buying out Billabong's interest in a $35 million deal last August, has been largely backed by institutions.

Among founding investors is fund manager Charlie Lanchester, who has a solid reputation in the Australian broking community. Brokers have a broadly positive view of the stock despite the disappointing start to trading.

Nathan Blair, the Gold Coast manager at Ord Minnett, says market volatility could be blamed for SurfStitch's weak start.

"It always baffles me why some investors are so quick to sell at a loss on the opening," he says.

"Admittedly, the market's volatility has increased in the past month and investors are risk averse, especially with small stocks.

"I think new investors found SurfStitch a little difficult to value. They have achieved significant growth in a short period of time, made some recent major acquisitions (Surfdome in the UK) and have very ambitious growth plans.

"Unfortunately the stock is lacking support from the general retail investor community.

"They unfairly compare it to Billabong which has an entirely different business model and should be ignored.

"Despite the sluggish debut, if the management meet their earnings forecasts, SurfStitch will surprise many and perform very well. "

SurfStitch was among $16 billion in IPOs to hit the Australian market in 2014, which saw a 40 per cent increase in capital raisings compared with 2013.

The pace of public offerings lifted significantly in the December quarter, accounting for almost half of the new ASX floats with $7.5 billion recorded during the period.

SurfStitch was one of three Gold Coast IPOs during the year, along with Mantra Group (ASX: MTR) and BPS Technology (ASX: BPS).

Mantra was the biggest, at $449 million, and the most profitable of the three floats for investors so far, with the company's $1.80 shares trading as high as $2.85.

BPS Technology, which owns the Bartercard trade exchange and the technology that supports the business, has had a tough time of it since floating. The $1 shares have slipped as low as 77c despite reporting that it was trading in line with expectations.