IPO market softens as stag profits turn negative

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The IPO market is getting tougher, reflecting general market conditions, although the dollar value of Australian IPOs last year was double that of the previous year, according to the annual survey by advisory firm HLB Mann Judd.

Its ‘IPO Watch’ report, overseen by Marcus Ohm, a Perth-based partner, shows last year started positively, helped by a handful of big floats, but ended much softer. The number of 180s was down, from 110 to 93, but their total value was well ahead, at $8.44 billion against 2017’s $4.09 billion.

Ohm said that, unusually, given the trend of recent years, there was a number of $1 billion-plus floats – including Viva Energy, Coronado Global Resources and L1 Long Short Fund – which combined to represent 64 per cent of the total funds raised.

Also unusually, he said, the average share price after each IPO (called a ‘stag’ profit when, as usually, it’s a gain) was a loss of 18 per cent. The tech sector, which is usually the second-most popular for IPOs, came back significantly last year. Materials represented the largest sector once again.

“This is the first time that there has been an average loss in prices for five years,” he said, “and also the first time in recent years that there hasn’t been a spike in numbers in the final quarter.” HLB Mann Judd does not include listed investment companies and trusts in its study and they may have improved the last quarter’s numbers. However, anecdotal evidence is that new LICs and other listed investment vehicles were also coming off the top towards the end of last year after a mini-boom in 2017 and early 2018.

His home state of Western Australia, “did alright”, he said. Most of its floats are in the materials sector – the largest. “We tend to do well with materials IPOs,” he said. “Materials recorded 35 listings, representing 38 per cent of all IPOs undertaken, compared to 29 listings in 2017.”

Small companies continue to make up the bulk of new listings by number, with 72 last year. This however, was down on the 88 recorded for 2017. The total also remained well above the previous five-year average of 50, Ohm said.

He predicted that the year-end results would probably mean a reduction in the IPO activity over the coming six months. Ohm said: “Unsurprisingly, only 17 companies applied to list on the ASX at the end of 2018, well down on the 17 which had applied at the same time in the previous year. The companies that have applied are hoping to raise $179 million, which is a 70 per cent reduction on the $603 million sought at the end of 2017.

“Overall the pipeline appears to be soft and reflects the performance of IPOs and the wider market. This was evidenced in the final quarter of 2018, with sentiment perhaps being an important factor. Companies considering listing will need to clearly articulate their offerings and provide sound investor communication.”

– G.B.

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