Large IPOs dominate while small caps struggle: HLB Mann Judd

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There was a marked shift towards larger initial public offerings (IPOs) in 2013, with 96 percent of all funds raised completed by companies with a market capitalisation of more than $100 million. This compares to 2012 where just 40 percent of funds raised came from large companies, according to the latest HLB Mann Judd IPO Watch report*.

The analysis found the total amount raised from new listings in 2013 was more than $8.5 billion, significantly higher than the $2.3 billion average of the past five years.  It is also more than $8 billion higher than the historic low of $0.4 billion reached in 2012.

In total, 49 companies listed on the Australian Securities Exchange in 2013, a slight increase on the 46 listings of 2012.

Of these new entrants, small cap companies comprised 61 percent of the total. This contrasts markedly with the previous year, where small caps represented 93 percent of total listings, and is also less than in 2011 where small caps represented 67 percent of total listings.

Marcus Ohm, author of the report and a partner with HLB Mann Judd Perth, says this reflects the difficulties in completing smaller raisings under current market sentiment.

“While small cap resource companies have dominated the IPO statistics in recent years, this was not the case in 2013. A combination of falling commodity prices and reduced investor sentiment appear to have had a negative impact on resource IPOs during 2013,” Mr Ohm says.

According to the analysis there was very little activity from companies with market caps of less than $10 million in 2013, with only four companies of this size successfully concluding listings during the year.

“This has historically been a market position occupied by junior exploration companies and the low volumes reflect the difficult conditions currently facing this sector,” Mr Ohm says.

“The average amount raised within the small cap sector was $12 million. This is an increase of 125 percent on 2012 ($5.3 million) and 66 percent on the average ($7.2 million) of the previous five years.

“Also positive is that 25 out of 49 newly listed companies finished the year even or in the black, with several recording gains of over 100 percent on their listing price. This is a similar experience to that of 2012 and is an encouraging sign for the market after a number of difficult years.”

Also encouraging is analysis that shows IPO activity by sector in 2013 has seen greater diversification than in previous years, with 15 different industry sectors being represented, compared to just seven in 2012.

“While resource companies still accounted for 35 percent of all new listings, this was significantly down on 2012 where 83 percent of the IPO market was from the two sectors of Energy and Materials.

“For small caps specifically, the industry sectors of Consumer Services and Pharmaceuticals, Biotechnology & Life Sciences were the best performers. They averaged 34 percent and 27 percent year-end gains respectively, and modest average first-day gains as well.”

The ‘rush to market’ often seen historically in the final quarter of the year was evident in 2013. The analysis found that 51 percent (25) of the year’s listings occurring in the final quarter, and 31 percent (15) of these happening in the month of December. This quarter also accounted for 62 percent of the total amount raised, and 67 percent of all the funds raised from small cap companies.

Despite a relatively strong 2013, the current year has started even more slowly than 2013 began. The 2014 IPO pipeline is extremely thin with only five planned listings. This is in comparison to 14 planned listings at the start of 2013 and 26 at the beginning of 2012.

“Despite the low number of listings, the target subscriptions sought are nevertheless in excess of recent years. These planned listings are seeking to raise a combined total of $143.7 million which is significantly higher than 2013 when the 14 planned listings were seeking to raise a total of $85.2 million.”

Mr Ohm says it is difficult to assess whether activity will increase throughout 2014.

“It would appear that small caps, historically the largest contributor by number of listings, have struggled to pursue IPOs throughout 2013 and it is unclear to what extent a small cap recovery will occur in 2014, particularly one originating from the resources sector.

“Contributing factors to the degree of any recovery are likely to include the extent of any upward movements in the market, investor sentiment returning to small caps, and also the degree to which commodity prices recover in 2014,” Mr Ohm concludes.

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

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* Emerging, or small cap, companies are defined in this report as those with a market capitalisation of $100 million or less. All data excludes property trusts and investment companies.  

 

For more information please contact:

Marcus Ohm – Phone: 08 9267 3225

29 January 2014

 

29 JANUARY 2013