The Australian Initial Public Offer (IPO) market is showing signs of greater strength, with some indicators back to their pre-global financial crisis levels, according to the latest HLB Mann Judd Small Cap IPO Watch, released today (Wednesday 19 January 2011).
During 2010, there were 96 new listings, up on 2009 (39) and 2008 (68), although still well below 2007’s figures (245). Of these, there were 84 small cap* companies listing in 2010 (2009: 36; 2008: 63; 2007: 215).
The total funds raised through all IPOs during the year was just over $6 billion, also below 2007’s amount of $8.43 billion but higher than 2006 when $5.83 billion was raised, and significantly up on both 2009 and 2008 ($2.965 billion and $0.788 billion respectively).
Mr Geoff Webster, head of HLB Mann Judd Corporate Finance and author of the report, says that the small cap end of the market is starting to look particularly positive, continuing to provide the bulk of market activity at 88 percent of new listings to the market in 2010.
“The average amount of funds raised by small cap companies increased to a four year high of $9.07 million, up from $7.47 last year and exceeding even the strong 2007 year.
“Such results suggest greater strength in the sharemarket, with IPOs continuing to increase in number since reaching their lowest level in 2009.
“In another positive sign for the market, companies across all market capitalisations that listed last year tended to outperform the market, averaging year end premiums of 32 percent compared to a decrease of 2.57 percent annual in the S&P/ASX200 index.
“Small cap IPOs performed even better, returning a premium of 46 percent for the year, and first day gains of 14 percent.
“However, the dominance of resource companies at the small end of the market, and the limited number of large cap listings, shows that market has not yet fully returned to ‘normal’,” he said.
The Small Cap IPO Watch showed that, as in 2009, the year finished very strongly, with 70 percent of the small cap companies that listed in 2010 coming to market in the second half of 2010, and 50 percent in the December quarter alone.
“This suggests that companies are still hoping that markets may improve before they list, but are willing to go ahead with the IPO as a deadline approaches,” Mr Webster said.
He added that the market is still heavily skewed towards the smaller end of the spectrum and a single listing can have a major impact.
“At the smallest end of the market, 51 companies with a market capitalisation of $25 million and less listed, a marked increase from 21 in 2009.
“This increase in activity indicates smaller companies are increasingly confident about going to market to raise capital.
“However, small cap companies only contributed 13 percent to the total funds raised in 2010, due mainly to a dominant listing, the QR National float which raised $4.043 billion, 67 percent of the total funds raised. A similar situation occurred in 2009 with the Myer float reducing the small cap contribution of total funds raised to 9 percent. Excluding those floats, small cap contribution to total funds raised was 37 percent and 35 percent respectively,” Mr Webster said.
According to the HLB Mann Judd Small Cap IPO Watch, the pipeline of IPOs already planned for 2011 is already substantially ahead of the same time last year. All but three are resource companies, a trend that is expected to continue for some time.
It also suggests that there is a trail of IPO-ready companies that are still unwilling to commit to the capital raising costs of an IPO in the current climate, until the risk-return equilibrium returns.
* Small cap companies are defined as those with a market capitalisation of $100 million or less. All data excludes property trusts and investment companies.
HLB Mann Judd is an Australasian association of independent accounting firms and business and financial advisers, with offices in Australia and New Zealand.
For more information please contact:
Geoff Webster – 03 9606 3888