Shortage of IPOs might reflect Wall Street caution.

Only a handful of L.A. firms made initial public offerings in the second quarter of 1997, although analysts predicted that number should pick up in the second half of the year.

Four Los Angeles companies went public in the three months from April to June. down slightly from a similarly sluggish five IPOs in the first quarter. By comparison, nine L.A. firms made initial public offerings in the fourth quarter of 1996.

Analysts attributed the IPO slowdown to the recent uncertainty on Wall Street, where small cap stocks took a hammering from mid-1996 through the start of 1997. That caused many firms to put their plans to go public on ice.

Nationwide, the number of IPOs on the Nasdaq fell to 222 in the first six months of this year from 333 for the like period of 1996, according to a Nasdaq spokesman.

"There's investor hesitancy that the market may be topping, so investors are more careful now about what they're buying," said Fred Roberts, president of F.M. Roberts & Co., an investment bank. He noted that IPOs tend to be riskier investments than more established stocks.

"In addition, portfolio managers are already looking at 20 percent rises in their portfolios over the year. So rather than put those profits at risk by investing in IPOs, they're holding out" and investing in older, more established companies, Roberts said.

The four L.A. firms making IPOs were Dental/Medical Diagnostic Systems Inc., a health care products manufacturer: Simulations Plus, a software maker, and two real estate investment trusts, Westfield America Inc. and Alexandria Real Estate Equities Inc.

Of the four, the two REITs were by far the largest offerings, accounting for more than $400 million of the combined $420 million raised in the deals.

The high interest in REITs owes to their reputation as safe, high-yield investments, compared with the speculative nature of more typical IPO firms, said Peter Griffith, managing director of securities brokerage Wedbush Morgan Securities.

"Investors are getting wary of these (speculative) companies. They want to see the beef. 'Show me the revenues and earnings!' is what they're saying," Griffith said.

Despite the presence of two REITS in second-quarter public offerings, real estate investment trusts have also lost some of their luster on Wall Street in recent months, said Hal Harrigian, director of corporate finance at Crowell Weedon & Co., a brokerage and investment bank.

"I think there was probably a five or six month phenomenon during the year that has cooled down in the last couple months." he said.

In another recent trend, Griffith noted that second-quarter IPOs in L.A. opened at prices in the lower to middle part of their offering range. [TABULAR DATA OMITTED] That was a marked improvement over the first quarter, when most IPOs were selling at prices below the lowest end of their offering range.

"Recent offerings are going at the mid-part of their range," he said. "They should stay where they are (in the third quarter)."

All of L.A.'s second quarter IPOs were trading above their initial pricing levels in early August. Two of them, Dental/Medical Diagnostic and Alexandria Real Estate were up more than 20 percent in their first one to two months of trading. The other two firms were also up, posting more modest gains in the 5 percent to 12 percent range.

While investors grow more selective in their IPO buying. their healthy appetite for solid new offerings should lead to a boosted level of new IPO activity in the fourth quarter, said Harrigian.

"Things were already picking up again in July," Harrigian said. "There's a renewed interest. Based on the road shows we've been on, there's an institutional and retail demand for new issues. I don't know if there's a feeding frenzy yet, but it sure feels like it."

Likewise, Griffith predicted the third and fourth quarters should be "very warm" for IPOs.

One indication is Imperial Credit Industries Inc. of Torrance. Imperial recently announced its intent to make an IPO for its subsidiary. Franchise Mortgage Acceptance Co. LLC. Terms have yet to be released, but Imperial said it expects the IPO to occur in the fourth quarter.

Roberts agreed that IPO activity could heat up in the fourth quarter, though he said the number of recent filings at the Securities and Exchange Commission have yet to reflect a coming ground swell.

"Most of the optimism about second half offerings is anecdotal so far. The number of filings has yet to reflect that rise. September will give us a clear message." he said.