THE BOURSE WHISPERER: One the annual highlights of February is the release of the IPO Watch Report from accounting firm HLB Mann Judd.
The report outlines the IPO activity for the previous year and is always informative reading, with this year being no exception.
According to the report there were 93 new listing to the boards of the Australian Securities Exchange in 2018.
As numbers people always on the look out for a positive, HLB noted that although this was less than the 110 IPOs in 2017, it was above the five-year average of 88.
The consistency of the materials sector was again reflected in the numbers with 35 listings (compared to 29 in 2017) representing 38 per cent of all new IPOs (increased from 26 per cent in 2017).
It is something of an anachronism that although the materials sector is always a major contributor to market growth the weight it carries in Western Australia is not felt in many eastern-state based, therefore focused, money factories making it difficult for what is the country’s major industry.
Anyway, back on track…
The report noted IPO activity for 2018 was fairly consistent throughout the year compared to 2017 when a pre-Christmas rush resulted in many of the companies listing in the final quarter.
The March quarter always seems to be the time companies choose to list and 2018 continued that trend with 20 companies listing, compared with the five-year average of 15 companies listing at this time.
Interestingly, all the new market entrants in the first quarter 2018, except one, were small caps.
This may be due to people not having enough spare change to throw around after the holidays, but it did mean we had a slow start to the year in terms of funds raised, with the first quarter raising just 2.5 per cent of the total for the year.
The June quarter was sluggish numbers wise with only 20 companies listing compared to 31 in 2017, but the larger nature of these listing meant more money was raised contributing 29.8 per cent to the annual IPO pot.
The September quarter stepped up a gear welcoming 26 new listings comprising 45 per cent of the funds raised for the year taking the prize for the highest average raising by quarter of $146.05 million.
In terms of year end share price performance, the June quarter was the worst performing quarter with an average year end share price decrease of 27 per cent for companies listing in this quarter.
The December quarter saw 27 new companies listing, well down on the five year average of 33 companies.
Adding to the poorer performance was new market entrants in this quarter recording an average first day share price loss of one per cent, going against the grain of typical day one gains. By year end, on average, there was a loss of 8 per cent for these listings.
“The year-end losses made by a significant number of IPOs in 2018 and general market conditions suggests that there is likely to be a reduction in IPO activity in the coming six months,” HLB Mann Judd said in the report.
This foreboding seems to be ringing true with only 17 companies applied to list on the ASX at the end of 2018, well down on the 37 that had applied at the same time in 2017.
Not only is the number of companies down, but so are the figures in terms of funds being sought at $179 million, which is a 70 per cent reduction on the $603 million sought at the end of 2017.
Once again it is the materials sector stocks leading the way of the proposed listings with seven listings in this sector (2017: nine), showing market sentiment remains for this sector.
“The Materials sector continued to grow in size in terms of new listings, with 35 in total,” HLB Mann Judd said.
“The total amounts raised by the sector contributed $1.42 billion or 17 per cent of the total raised by all companies.
“This was a sharp increase on the previous year which had been considered a strong year for the sector.
“In relation to small caps, the sector made up 43 per cent of small cap listings and 27 per cent of small cap fundraising.
“On average these small cap Materials listings performed poorly, with an average year end loss of 24 per cent.
“It will therefore be interesting to see if this affects investor sentiment going forward.”