The first half of the year has seen a strong market for initial public offerings (IPOs), setting the scene for what is likely to be a positive 2018 for IPOs, according to the HLB Mann Judd IPO Watch mid-year update.
While there were fewer listings in the first six months of 2018 compared to the previous year (39 compared to 57), this year has still outperformed the previous five-year average, of 37 listings.
Marcus Ohm, partner at HLB Mann Judd and author of the report, said that historically, there are more listings in the second half of the year than in the first, so there is a good chance of a healthy level of IPO activity in 2018.
“Usually, around two-thirds of listings take place in the second half of the year, so 39 listings in the first half of the year is a strong start.
“Indeed, 2017 was an anomaly in that the listings were relatively evenly spread throughout the year. In total, there were 110 listings during 2017, and 57 of them – just over half – were in the first six months,” Mr Ohm said.
He also pointed to the subscription rates achieved so far this year as an indication of a well-performing market.
“In previous years, new listings have found it challenging to achieve full subscription targets. However the results of 2018 indicate that the market continues to improve. Overall, 72 percent of total subscriptions sought was raised, with 28 IPOs being either fully subscribed or oversubscribed.
“The entire market raised $2.5 billion, which represents an oversubscription of 29 percent. This impressive result is largely due to L1 Long Short Fund Limited (ASX: LSF) which raised $1.3 billion after initially seeking $600 million. However even without this outlier, the market raised, on average, 88 percent of funds sought.
“Within the small cap* sector, both the $1-10 million and $75-100 million market capitalisation ranges recorded 100 percent of their subscription targets, making them the best performing market cap ranges, and even the worst performing small cap section – $24-50 million – achieved an average subscription rate of 93 percent.
“This indicates strong support by investors for small cap companies, and we have seen a considerable number of small cap entrants to the market in 2018.
“However there has also been a return of large cap companies to the market, with eight new listings between January and June 2018 exceeding $100 million market cap.
“This is the same number as in the first half of last year, but the pipeline for the second half of this year is quite different from 2017. Those planning to list in the second half of 2018 are seeking a combined total of $3.5 billion, which represents a significant improvement on the $602.9 million raised in the second half of 2017. Indeed, Viva Energy Group has already listed this month, raising $2.6 billion.”
Continuing to look ahead, Mr Ohm said that small cap, junior exploration companies in the resources sector appear to be the strongest contributors to upcoming listings in terms of numbers.
“On 1 July 2018, there were 35 companies that had applied to list on the ASX, and eleven of these are in the Materials sector.
“Technology stocks are also showing signs of improvement, with a further eleven companies in Technology, Biotech and Software & Services applying to list. Technology stock activity should be a positive for the ASX, as these sectors are often comprised of larger companies.
“Overall, there is a broader range of companies planning to list in 2018, with Real Estate, Food, Beverage & Tobacco, and Capital Goods, each having several listings in the pipeline,” Mr Ohm concluded.
HLB Mann Judd is an Australasian association of independent accounting firms and business and financial advisers, with offices in Australia, New Zealand and Fiji.