The IPO market fired up in the last quarter of 2013, with 30 new listings and $6.11 billion raised in that quarter alone.As Australia experiences its strongest flow of company floats since before the financial crisis, BusinessDay can reveal the winners and losers in the great IPO rush.
The appetite for company debuts on the ASX has exploded in the past 12 months, with the amount of capital raised soaring to $9.2 billion – more than the $8.8 billion raised over the three years leading up to 2013.
Fund managers attribute the flurry of activity to a buoyant market and private equity firms, which have had a soft deal flow since 2012, thundering back into action.
Investor confidence has also fuelled demand for IPOs, considering the performance of some of the year’s biggest floats.
Cleaning and services group Spotless, which raised the most capital for the year with $995.6 million has surged more than 10 per cent since it listed last Friday.
Credit reporting business Veda has also had an impressive debut, with its shares rocketing 80 per cent – catapulting it into the top five best-performing new listings – since it floated last November.
”The performance of a number of recent listings, mainly Spotless and Veda, have been quite good for investors so it is giving them the confidence to return to invest in further IPOs,” Citi’s head of capital markets origination John McLean said.
The IPO market fired up in the last quarter of 2013, with 30 new listings and $6.11 billion raised in that quarter alone, according to Grant Thornton.
Data from the business advisory firm also showed a clear trend from the materials (mining) sector in favour of the financial and consumer discretionary sectors.
This was despite small phosphate explorer Fertoz, which raised $4 million, being the best performing float over the past 12 months, with shares rising 180 per cent.
Mr McLean said it was difficult to pinpoint a trend by sector alone.
”It’s hard to pick a defining theme, other than what always applies, which is quality management teams, businesses that are exposed to growing industries and can produce good dividend yields through strong cash flows – and that have every prospect of meeting or beating their prospectus forecast.
”I think that’s the key. A couple of the transactions that maybe haven’t gone so well have struggled to make their forecasts.”
Indeed, insurance comparison website iSelect was the second-worst-performing IPO – with its shares slumping 40.1 per cent since it listed last June – after a kerfuffle over earnings guidance that triggered an Australian Securities and Investments Commission inquiry.
And transport company McAleese, the worst-performing IPO for the year, has plummeted 69 per cent after issuing two profit warnings in two months.
The trucking group has been struggling to regain credibility with investors after a fatal accident involving one of its fuel tankers in Sydney last year. In April the company said sales revenue for the March quarter would be $9 million less than forecast internally, while earnings before interest, taxation, depreciation and amortisation (EBITDA) would be $7 million lower.
Still, 60 per cent of floats are trading in positive territory.
Mum and dad investors have been particularly keen to buy into IPOs, with retail demand soaring.
CommSec general manager, distribution, Brian Phelps said his clients had been involved in 16 floats this year, compared with 10 in 2013.
Mr Phelps said record-low interest rates were helping fuel demand, with many retail investors slowly re-entering the sharemarket after converting stocks for cash during the financial crisis.
But there has been some reticence. ”People have just been gradually getting back into the market, they haven’t pushed their all back in again,” Mr Phelps said.
As as result, he said, there was still a ”fair bit of cash on the sidelines”, which he expected would continue to buoy the IPO market.
”Things like IPOs are a good opportunity to get in at ground level. A lot of people are looking at the market and thinking, ‘Wow it’s ticked up over the course of the last year, 30 per cent plus, how do I get back in? Here’s an IPO, I might have a go at that.”’
Retail investors have been particularly interested in companies with strong brands such as Nine Entertainment, the year’s second-biggest float, raising $624.64 million. The company’s shares have risen 6.8 per cent since its listing.
But Mr Phelps said IPO demand was outstripping supply, with many offers oversubscribed.
”That leads to scale backs and becomes frustrating for retail clients because the [institutional investors] end up with a good volume of the flow that comes with these IPOs and the [retail investors] get a bit on the back.”
Beacon Lighting was another float that benefited from a strong brand. The company, which sponsored Channel Nine’s home renovation show The Block, has risen 54.5 per cent since it listed in March, placing it inside the top 10 best-performing IPOs.
Wilson Asset Management chief investment officer Chris Stott attributed the strong performance to solid management and growth prospects. ”They are in a good industry position. They have a strong growth outlook in terms of rolling out stores right around Australia,” Mr Stott said. ”We also are seeing small signs of that renovation cycle starting to pick up, which would benefit Beacon Lighting.”
Mr Stott expected the momentum of IPOs to continue for at least the next 12 months and across a number of sectors.
Platypus Asset Management founder and chief investment officer Donald Williams said as long as the sharemarket, which this week hit six-year highs, stays ”comfortably above 5000 points” it should be able to absorb a flurry of floats.
”There are lots of reasons why the IPO will continue to be open, I think,” Mr Williams said.
”We think the market will grind higher for most of the year and valuations are reasonable, they are better than they were a couple of years ago.”
Mr Williams expected the health sector to dominate the biggest IPOs, particularly given the federal government’s impeding float of Medibank, and mooted relisting of Australia’s second-biggest private hospital operator Healthscope.
This story Administrator ready to work first appeared on Nanjing Night Net.