Smallest companies continue to dominate IPO market: HLB Mann Judd

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While market conditions continue to be a challenge for companies seeking to list on the sharemarket, there has been an improvement in the performance of those that do go ahead with an initial public offering (IPO), according to the latest HLB Mann Judd Small Cap IPO Watch*.

According to the analysis, the number of newly listed companies that recorded year end losses was down on the previous year and, on average, new listings also recorded an increase in share price of six percent at the end of the year.

Marcus Ohm, author of the report and a partner with HLB Mann Judd Perth, said that these findings are an improvement on the previous year, but the market remains extremely difficult for companies seeking an IPO.

“A six percent increase in the average share price of newly listed companies is a positive, and an improvement on 2011 when this average price went down 12 percent.  However, the six percent increase is still lower than the broader market which closed the year up 13 percent.

“Likewise, a reduction in the number of companies that recorded losses is good news in itself; however the statistics show that 48 percent of companies recorded losses (2011: 61 percent) which is still a very high proportion.

“Nonetheless, for individual companies that did go through with an IPO and recorded gains, the process has clearly been a successful one and shows that a public listing is still a good option for some businesses.

“Companies in the materials sector have had the best outcome, with IPOs in this sector closing the year 17 percent higher and experiencing 10 percent first day gains,” Mr Ohm said.

The IPO Watch also showed that there were less than half the number of successful initial public offerings in 2012 compared to the previous year, with just 46 IPOs completed compared to 104 in 2011 and 96 in 2010.

According to the report, of the total new listings during 2012, 43 were small cap companies (2011: 92), representing 93 percent of all IPOs during the year and continuing the pattern of the past several years.

Only three large cap IPOs (over $100 million market cap) were completed during the year, which was down 75% from 2011 (12 listings) and the lowest for a number of years (2010: 12, 2009: 3, 2008: 5).

Within the small cap sector itself, there were no capital raisings over $75 million (2011:1) and only two over $50 million (2011: 4).

Mr Ohm said that it seems that the smallest end of the market has the most to gain from going ahead with an IPO in the current market conditions.

“Our findings showed that the smallest cap IPOs (those up to $10 million) had the largest post-IPO share price gains, with average year end gains of 35 percent.

“The smallest end of the market dominated, with 81 percent of small cap listings being undertaken by companies with a capitalisation of less than $25 million market.  This continues the trend from the previous year and reflects an increasing bias towards smaller cap listings compared to previous years (2010: 61%, 2009: 58%).

“This suggests that the difficulties in attracting funds to larger raisings by the small cap sector is continuing, and indeed is likely to continue during 2013.

“Currently, the number of planned IPOs is significantly down on the same time last year, with just 14 planned listings compared to 26 in 2012.  These planned listings are seeking to raise a total of $85.18 million, which is significantly lower than 2011 where the 26 applications were seeking to raise $122.2 million.

“It’s possible that activity may increase in the second half of the year as these uncertainties are resolved and more stability, predicted by many analysts, returns to the market,” 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. 

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* Small cap companies are defined 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

30 January 2013