IPOs off to a promising start

The first half of the year has seen a strong market for initial public offerings (IPOs), setting the scene for what is likely to be a positive 2018 for IPOs.

IPOs performed well in the first six months of the year with an average first-day gain of 16% and average gain to the end of June 2018 of 6% compared with the 2% increase in the All Ordinaries in that same period.

While there were some good gains, 23 out of 39 companies finished the period below listing price. It is important that investors do their research and read and understand the prospectus, which details the risks of investing in that company.

While there were fewer listings in the first six months of 2018 compared with 2017, when there were 57, this year has still outperformed the previous five-year average of 37 listings.

Usually around two-thirds of listings take place in the second half of the year, so 39 in the first half of the year is a strong start.

Indeed, 2017 was an anomaly in that the listings were relatively evenly spread throughout the year. In total, there were 110 during 2017.

Looking ahead, the small-cap junior exploration companies in the resources sector appear to be the strongest contributors to upcoming 2018 listings in terms of numbers.

On July 1, 2018 there were 35 companies that had applied to list on the ASX, and 11 of these were in the materials sector.

Technology stocks are also showing signs of improvement, with a further 11 companies in technology, biotech, and software and services applying to list. Technology stock activity should be a positive for the ASX, as these sectors often comprise larger companies.

Overall there is a broader range of companies planning to list in 2018, with real estate, food, beverages and tobacco, and capital goods each having several listings in the pipeline.