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Australia’s IPO market went cold in 2018: new listings made first loss in 7 years

Stockhead logo Stockhead 30/01/2019 Sam Jacobs
cold © Stockhead Australia cold

Initial public offerings (IPOs) are three words that often get the attention of investors, but 2018 wasn’t a great vintage.

Companies which listed on the ASX last year saw their share price fall by an average of 18 per cent from the initial listing price, according to IPO Watch, an annual report from accounting firm HLB Mann Judd.

Their performance significantly lagged the broader ASX200, which declined by 7 per cent for the calendar year.

And 2018 marked the first time in seven years that IPO stocks returned an average loss.

HLB Mann Judd expects activity to remain subdued in 2019.

Even in IPOs, you’re still looking for gold

But even in a downturn, there are opportunities within specific sectors.

Marcus Ohm, a corporate advisory partner in HLB’s Perth office, said two factors — risk-off sentiment in global markets and a decline in the Aussie dollar –has given rise to a material increase in gold prices over recent months.

That could in turn see more IPO activity in the sector, as smaller gold miners take advantage of higher prices to successfully list on the ASX.

Looking ahead

The report suggested that overall the IPO pipeline this year appears to be soft, a reflection of recent IPO performance as well as the broader market conditions.

“Companies considering listing will need to clearly articulate their offerings and provide sound investor communication.”

Splitit (ASX:SPT) was the first IPO of the year and caught the market’s attention when it shot up by more than 100 per cent over the first two days.

But there are only a handful of listings scheduled in over the next couple of months, and the report noted that only 17 companies had applied to list on the ASX as at the end of last year, well down from a total of 37 in 2017.

Often, companies aiming to list will try and do so when stock indexes are on the rise, taking advantage of investors’ increased tolerance for risk.

In view of that, last year’s market ructions — when the ASX200 slumped by more than 10 per cent between October and December — have added to the uncertainty surrounding new listings.

“There is likely to be a reduction in IPO activity in the coming six months,” HLB said.

What you need to know

Here’s a summary of the other key data:

  • There were 93 IPOs on the ASX in 2018, down from 110 in the previous year but higher than the five-year average of 88.
  • However, the number of small-cap IPOs (a market cap of less than $100 million) fell to 72, an 18 per cent decline from the previous year.
  • By sector, the vast majority of listings took place in materials (35, up from 29 in 2017). The next highest was software & services with 11.
  • Together, those two sectors accounted for almost half of all listing across 26 industries that HLB tracks as part of its analysis.
  • The total amount raised was $8.44 billion, more than double the 2017 total of $4.09 billion.
  • Of that, the amount of capital raised by small-caps amounted to $711 million — around 8 per cent of the total.

So there were less IPOs in 2018, but more than double the funds raised compared to the previous year.

That shift can be attributed to three large capital raises of more than $1 billion each — Viva Energy, Coronado Global Resources and the L1 Long Short Fund — which raised $4.75 billion between them.

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