THE BOURSE WHISPERER: There was a time – not long ago – when small-cap mining companies dominated the Initial Public Offerings (IPO) page of the Australian Securities Exchange (ASX) website.
There was no shortage of ‘potential world-class deposits’ being spun out from companies to investors, eager to separate themselves from their savings in search of the next elusive ‘ten bagger’ stock.
With a week now being considered a long time by market pundits, today these heady times stumble about in the dark closets of ancient history, especially now, as a recent report by accounting firm, HLB Mann Judd has found, that the first time since 2007, large capitalisation IPOs dominated the market in both quantity of listings, and the funds raised.
According to the latest HLB Mann Judd, IPO Watch: the market for emerging companies, report two-thirds (67 percent) of IPOs undertaken during 2014 were by companies with a market capitalisation over $100 million, up from 39 percent in 2013 and a significant increase from 2012 where small cap companies made up 93 percent of all listings.
In total, large cap entities represented 99 percent of all amounts raised.
There were 58 IPOs during 2014 representing an increase of 18 per cent over 2013 when 49 companies listed.
Source: HLB Mann Judd, IPO Watch: the market for emerging companies
This number gains greater significance when compared to the over-all five-year average of 67 listings.
Within the small-cap sector, 2014 welcomed 19 listings, which was a long way down, 37 per cent of the five-year average 57 listings in comparison to 2013 (30 listings) and 67 per cent on the five-year average.
“Within the small cap sector, resources stocks contributed eight listings (42 per cent), raising $56.2 million or 28 per cent of the total small cap raisings,” Marcus Ohm, author of the report and partner at HLB Mann Judd Perth, said.
“Information technology stocks had a significant increase from just one listing in 2013 to seven in 2014, which represented 37 per cent of the small cap IPOs.”
To be fair to the resources small-cap sector it did come up against some healthy opposition in 2014 with the Federal Government’s decision to privatise Medibank Private in the year’s largest IPO.
The sector’s usually strongest supporters, the mum and dad investor types, unsurprisingly funnelled a good deal of their funds into this stock, especially Medibank Members, who picked up each share for $2.00, a nice discount compared to the $2.15 offered to institutions.
Ohm predicts healthcare and biotechnology stocks to continue this strong run into 2015, with seven proposed listings already flagged from these areas, seeking to raise $59 million.
At the time the report was being put together there were already 14 companies applied to list on the boards of the ASX for 2015, with the total funds sought by these IPOs hitting the $114 million mark.
The sobering aspect for the small-cap exploration sector is that only four of the planned listings are for resources stocks, which Ohm suggests signals this sector may continue its sluggish performance through 2015 on the back of lower commodity prices and poor investor sentiment.
“Investor activity in 2014 indicated strong support for larger cap listings and, in particular, a bias towards those companies with established and predictable earnings with solid growth potential,” Ohm said.
“Based upon this, it is anticipated that the IPO market will continue to be difficult for smaller entrants in 2015 unless they have a very attractive investor proposition.
“It is likely that materials and energy stocks will continue to find the market difficult as commodity prices, particularly oil and iron ore, continue to struggle.
“Activity also indicates that IPOs of well-established businesses (such as those in healthcare and related services) will continue to be well supported by the market.”
Ohm was supported in his findings by Sydney-based colleague HLB Mann Judd partner corporate advisory Simon James, who noted the effect of the commodities slow-down with bulks and base metals prices having declined substantially since the peak in 2011-12.
This, James said, had resulted in there being less and less small resources companies around, and therefore less IPOs from this end of town, so not only is the large cap segment of the market growing, the small cap end is shrinking.
“All these trends are likely to continue in 2015 so we can expect to see large-cap IPOs continue to dominate the next 12 months,” James said.
“Fortunately for those smaller entities that might have looked at an IPO as a source of funds we are seeing alternative funds being derived from other sources with more frequency and ease.
“Private equity, retail banks and high net worth individuals are becoming increasingly visible in the capital and debt markets.
“There has also been an acceleration of larger enterprises taking direct investment positions in entities that require cash to fund growth.
“This ‘try before you buy’ trend is likely to continue.”