IPO Report Predicts Poor Listing Numbers for The Year Ahead

COMMODITY CAPERS: Advisory and Accounting Firm, HLB Mann Judd released its annual IPO Watch Report this week, answering many questions while providing plenty of room for more.

If we get into the nuts and bolts of the report first up, we learn that 87 companies listed on the Australian Securities Exchange (ASX) in 2022.

Not bad, however if you compare it to 2021, a startling picture begins to emerge.

A total of 191 IPOs listed on the ASX in 2021, which at the time, was the highest number of new floats for ten years.

The Resources sector is always a strong performer in this sphere, and in 2021 accounted for 107 out of a total of 191 new market entrants.

Of the 87 new listings in 2022, there were 63 from the Resources sector.

“Over the past five years, with the exception of 2019, the Materials sector has been the biggest contributor to new listings by sector,” HLB Mann Judd Partner, Corporate & Audit Services, Perth Marcus Ohm said in the report.

“In terms of geographical spread, 46 of the Materials listings in 2022 were based in Western Australia, as it continues to be the primary location for new market entrants from this sector.

“A total of 63 per cent of all listings in the year were WA-based and the state has the overall highest number of new listings over the past five years.”

This fall in IPOs did take market watchers by surprise because 2021 had ended with a wet sail facing a healthy pipeline of companies looking to list in early 2022.

By the mid-year point of the 2022, there had been 59 new listings overall, which when compared to the 61 listings at the same stage in 2021 had companies looking to list, licking their lips in anticipation.

But then, suddenly, the IPO market all but dried up in the second half of the year with no single month from June onwards recording double-digits for new listings.

This malaise was reflected in the total funds raised in 2022 that reached $1.07 billion.

This would be okay for Telethon, but when compared to the record-breaking amount raised in 2021 of $12.33 billion it does tend to look insipid.

What is even more worrying is that the monies amounts raised were also well below 2020 ($4.98 billion) and 2019 ($6.91 billion), years that both recorded fewer listings – 74 and 62 respectively – than in 2022, which had fewer contributions from large cap listings than in these prior years.

“The market factors and weaker investor sentiment impacted company subscription targets,” Ohm explained.

“In total, 70 per cent of listings achieved their target amount, a notable fall from 87 per cent in 2021 and below the five-year average of 81 per cent.

“New entrants overall struggled to maintain and grow their share price in the period, despite average first day gains of 16 per cent.

“At the year end, gains for many new entrants were down and, on average, listings posted a loss of 2 per cent against IPO price.”

Economically speaking the New Year started well with commodity prices enjoying a jump and the temperature of China’s cold diplomacy warming while US inflation was reported to have dropped in January to 6.5 per cent for the 12 months through to December 2022.

On the back of these indicators, the ASX enjoyed a buoyant January clocking up a four-week run of gains, hitting a nine-month high in the process.

All eyes are most likely on the Board of the Reserve Bank of Australia (RBA) and where those funsters may decide on what sort of fiscal ride to take us as inflation remains high, leading many analyst to consider another rate rise is on our way in February.

HLB Mann Judd believes the slowdown in IPO activity in the second half of 2022 is likely to continue into 2023, with only 10 companies having applied for listing to the ASX, at this stage.

“Nine of these companies have listed mining or mineral exploration as their principal activity, indicating 2023 is likely to once again be dominated by the Materials sector,” HLB Mann Judd said.

“Three of the proposed IPOs hold lithium projects and three listings have gold projects, indicating these will again be popular commodities for proposed listings in the year.

“Other primary projects held by companies in the pipeline include cobalt and hydrogen.”

The performance of the IPO class of 2022 raises a very important question: Are punters prepared to support stocks once they are up and trading?

Back to the IPO Report stats – 48 companies, or 55 per cent of those that listed in 2022, posted a first day gain, slightly less than 2021, when 60 per cent of listings recorded a first day gain.

The average, and we do mean average, first day gain across all listings was 16 per cent, with only five listings recording a first day gain of over 100 per cent.

Heading this pack was Lithium Plus Minerals (ASX: LPM) giving punters their best first day gain for the year at 180 per cent over issue price, highlighting the strong investor sentiment in battery metals.

The Materials sector had four of the top five listings with the sole interloper being Firebrick Pharma Limited (ASX: FRE), an entrant in the Pharmaceuticals, Biotechnology & Life Sciences sector, producing a first day gain of 165 per cent, taking second place on the first day gain listings.

“Market entrants struggled to maintain their year end share price following their first day gains, with 65 companies experiencing a fall in share price following first day trading,” HLB Mann Judd observed.

“The largest falls were recorded by three of the five new listings that recorded first day gains over 100 per cent.

“This activity reflects how quickly circumstances can change in the current market.”

Yes, circumstances can change, but one thing doesn’t – the thirst for profits.

Perhaps next year the bean counters preparing the Report might want to take note of the share trading volumes on these first days.

It would be a worthwhile wager that day one would be the busiest as those with the shares, armed with the ability to pump them up to eager buyers sell off quickly, thus providing a healthy wad of cash in the bank for when these companies come around for their first capital raisings at five, perhaps seven cents, that can quickly be sold off again at nine cents.

Get in and get out quick seems to be the IPO axiom at present and there is no sign punters are prepared to stick it out for the long haul.

Maybe those who get out early, taking their profits with them are the same ones who buy back in at seven or nine cents, hoping the original dream they shared with the Board of Directors, one day comes true.

Or is there just not enough money around for investors to leave it there and be able to find more for further flutters?