Small cap listings dominate IPO market; strong pipeline in place for 2018 – HLB Mann Judd

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The number of initial public offerings (IPOs) in 2017 was the highest since 2007, signalling the ongoing good health of the market and improved investor sentiment, according to the latest HLB Mann Judd IPO Watch report. 

There were 110 new listings during the year, an increase of 17 percent on 2016, and also an improvement on the five-year average of 83 listings.

Marcus Ohm, author of the report and partner at HLB Mann Judd Perth, said there has also been a shift towards more small cap listings in recent years, which were generally well supported by the market.

“In fact there has been a marked shift in the past two years towards an increasing proportion of the IPO market being made up of small cap companies – those with a market capitalisation of less than $100 million.

“In 2017, 88 small cap companies completed an IPO, making up 80 percent of all listings. This was a solid increase of 38 percent over 2016’s 64 small cap listings and a 68 percent increase over the previous five-year average of 52 listings.

“New listings significantly outperformed the wider market in 2017 in terms of year-end share price gains, with an average increase in share price of 46 percent across all new IPOs, and 56 percent within the small cap sector specifically.  This compares favourably against the ASX 200, which nonetheless recorded a solid increase of seven percent overall.

“Overall, investor sentiment towards the IPO market appears reasonably healthy, with 79 percent of IPOs meeting or exceeding their capital raising goals.  In total, new IPOs obtained 94 percent of the total funds being sought.

“In a sign of increasing market confidence, the underwriting of offers continues to decrease, with only 25 percent of offers being underwritten this year, compared to 31 percent in 2016 and 44 percent in 2015.

Mr Ohm said that the high number of small cap listings meant that the total funds raised in the year was less than previous years.

“Total funds raised decreased significantly in 2017 compared to 2016, from $7.5 billion to $4.1 billion.  This was also well below the three-year average of $6.2 billion, reflecting the past contribution of large cap companies.

“Notably, there were no listings in 2017 with a market capitalisation in excess of $1 billion.

“In total, small cap companies raised $1.1 billion of the total raised for the year, or 28 percent, compared to 11 percent in 2016.”

Mr Ohm added that during 2017 there was a resurgence in the Materials sector, reflecting improved commodity prices and investor sentiment.

“The Materials sector recorded the most listings for the year, with 29 listings representing 26 percent of all IPOs.

“Interestingly, the Software & Services sector, which has been a significant contributor of new listings in recent years, experienced a decline. 

“Other notable sectors last year include the Investments sector with 10 listings, and Pharmaceuticals, Biotechnology & Life Sciences with seven listings.  It is likely the latter sector will continue to generate new listings, particularly within the medical marijuana area.”

Looking ahead, Mr Ohm said that 2018 appears set to build on the success of 2017, with the Materials sector again poised to be a significant contributor.

“At the start of the year, there were 37 companies who had applied for listing, an increase of 61 percent over the start of 2017.  Materials and technology stocks make up the bulk of the proposed listings, with nine and eight listings respectively.

“Overall, the pipeline appears to be relatively healthy, and reflective of improved market conditions and investor sentiment,” he said.

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


* 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.