Strong start to 2017 for small cap IPO market: HLB Mann Judd

Culture, character and communication
July 19, 2017
Highly recommended rating for three BAEP funds
July 27, 2017

The IPO market in Australia has had a strong first six months, and the small cap* sector in particular made an impressive showing, according to the HLB Mann Judd IPO Watch mid-year update.

There were 57 listings between 1 January and 30 June 2017, compared to 34 listings during the same six month period in 2016.

“The first half of 2017 has seen a strong performance in what is historically a quieter period for new listings,” says Marcus Ohm, author of the report and partner at HLB Mann Judd Perth.

“It sets the scene for a solid 2017 in terms of IPO numbers, as we would anticipate a higher number of listings in the second half of the year compared to the first half.

“Our analysis also reveals that the small cap sector has had a particularly good start to the year, with 49 (i.e. 86 percent) of new companies having a market capitalisation of less than $100 million.  Indeed all listings during the first quarter of the year were small cap companies.

“As a result, there has been a reduction in the total amounts raised for this six month period compared to last year, at $1.9 billion (2016: $2.5 billion).

“A significant portion of companies that have applied to list in the second half of the year are also small caps, therefore it is possible that we will see a meaningful drop in the total amounts raised in 2017 compared to recent years (2016: $7.50 billion; 2015: $7.02 billion).”

Mr Ohm said that it is striking that there has been an absence so far this year in very large listings.

“This time last year, we had seen two companies list with a market capitalisation of around $1 billion and 11 companies list with a market cap over $100 million.  So far in 2017, there has only been one listing with a market cap greater than $500 million, and seven with a market cap between $100 million and $500 million.

“The current pipeline of listings for the remainder of 2017 does not show any particularly large listings on the horizon.  As at 30 June, 21 companies have applied to list and junior exploration companies are likely to be a strong contributor, particularly the Materials sector which currently has 10 proposed listings, seeking to raise a total of $75.5 million.

“In terms of total funds sought, Investment stocks dominate, with three proposed listings looking to raise a combined total of $362.2 million, or 68 percent of the total.

“The Pharmaceuticals, Biotechnology & Life Sciences sector has also seen some movement in the first half of 2017, with four listings raising a total of $37.0 million.  A number of these listings were related to medical marijuana after recent legislative changes,” Mr Ohm said.

He added that one notable feature of the market is the marked decline in the number of reverse takeovers, or backdoor listings.

“With only 10 reverse takeovers in the first six months on 2017, it is clear that the recent attractiveness of this listing route has significantly reduced.  In contrast, there was a total of 69 backdoor listings in 2016 which highlights the extent of the reduction in the first half of 2017.

“The changes to the ASX listing rules, which came into effect in December 2016, have made the reverse takeover route much less attractive.   Of the 10 reverse takeovers this year, all started proceeding prior to the new rules coming into effect.  Most occurred in the first quarter of this year, with only two taking place in the second quarter.  We would expect this trend to continue for the remainder of the year,” 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. 


* 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