Challenging environment ahead for IPOs in 2020

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MEDIA RELEASE: While the number of IPOs in 2019 was down on the previous year, listings overall performed better than in 2018, according to the latest HLB Mann Judd IPO Watch Report.

There were 62 new listings on the ASX in 2019, down from 93 in 2018 and also down on the average of 96 listings a year between 2015 and 2018.

Marcus Ohm, author of the report and partner at HLB Mann Judd Perth, said that the year’s IPO activity was a return to the levels seen between 2012 and 2015, when the average was 61 new listings a year.

“The rate of new listings has slowed since the peak achieved in 2017, when there were 110 new listings – the highest number since 2007.

“The fall in listings in 2019 resulted in a decrease in total funds raised during the year compared to the previous year. In 2019, $6.91 billion was raised, down 18 percent on 2018 when $8.44 billion was raised.

“The total funds raised was also affected by a fall in the number of very large companies listing, with the largest capital raising in 2019 achieved by Tyro Payments (ASX: TYR) achieving $925 million. In contrast, in 2018 there was a number of $1 billion+ companies listing, and the three largest IPOs of the year raised $4.75 billion between them.”

Mr Ohm said that despite the drop in the number of IPOs and the total funds raised, there was an increase in the average amount raised and also an improvement in subscription rates.

“The average amount raised in 2019 was $112 million, up from $91 million in 2018. This partly reflects the fact that there were fewer small cap listings over the past 12 months.

“Subscription rates also improved in 2019, with 84 percent of all IPOs meeting their subscription targets, up from 72 percent the previous year. A number of listings were oversubscribed or raised above their minimum subscription targets.  

“Large caps in particular performed well, with 29 of the 34 large cap companies obtaining or exceeding the subscription targets. The $10-$25 million bracket was the worst performing for subscription rates, with only 75 percent of listings achieving their target.”

There was a significant reduction in the number of small cap IPOs in 2019 – just 28 compared to 72 in 2018.

“During 2019, we saw a ‘move to the middle’ in terms of the market capitalisations of new listings, with fewer listings at both the very small and the very large ends of the market.

“Small cap companies made up just 5 percent of the total funds raised, and 45 percent of all new listings, compared to a five-year average of 66 percent.

“The drop in listings in the Materials sector was the main driver for this, with only seven listings in this sector compared to 35 the previous year,” Mr Ohm said.

He says that while the year was notable for the number of IPOs that were shelved or withdrawn, those that did list performed well.

“The pulled float by Latitude Financial, and others including Retail Zoo and Onsite Rental Group, highlighted some of the challenges of going public, but overall in 2019, new entrants performed well, particularly compared to the previous year.

“The average year end gain across all companies was 34 percent, and the average first day gain was 24 percent.

“On average, new floats outperformed the market generally, with the All Ordinaries increasing 19 percent in value over the year.

“The small cap segment performed particularly well, recording average increases of 47 percent compared to initial listing price.”

Looking ahead, Mr Ohm said the pipeline for IPOs is subdued. 

“Only 13 companies had applied for listing to the ASX at the start of 2020, down from 17 the year before, and significantly down from 37 at the start of 2018.

“Materials stocks make up the majority of the proposed listings, with six listings, and it will be interesting to see how this sector performs in 2020, considering its muted performance in 2019.

“It is also noteworthy that there are no proposed IPOs of any significant size. Overall, the pipeline is soft and reflects the challenging conditions in the IPO market at present,” Mr Ohm said.

HLB Mann Judd is an Australasian association of independent accounting firms and business and financial advisers, with offices in Australia and New Zealand.