Cool year forecast for IPOs
Despite total funds raised in initial public offerings (IPOs) in 2018 hitting $8.44 billion from 93 launches – up 106% on the 2017 total of $4.09 billion – the pipeline into 2019 reflects a softening of the market.
The underlying reason for the increase in amounts raised in 2018 was a small number of very large ($1 billion-plus) companies listing, with the three largest IPOs representing 56% of the total funds raised. These three companies (Viva Energy Group, Coronado Global Resources and L1 Long Short Fund) raised a total of $4.75 billion between them.
The remaining 90 IPOs in 2018 raised a total of $3.69 billion, with a decrease in average funds raised. It’s a trend we can expect to continue and it means investors needed to carefully consider the fundamentals before deciding to invest in an IPO in the year ahead.
On average, IPOs in 2018 experienced an underwhelming share price performance after listing. New market entrants recorded an average first-day gain of 5% but only 47 listings ended their first day above their listing price – a rather poor result given that the issue price of these IPOs was typically discounted.
Year-end gains were disappointing too, as on average IPOs for the year decreased in share price by 18%. This is a worse performance than other market indicators, with the S&P/ASX 200 recording a decrease of about 7%.
The year-end losses made by a significant number of IPOs in 2018 and general market conditions suggest that there is the potential for a reduction in IPO activity in the coming six months.
Unsurprisingly, only 17 companies had applied to list on the ASX at the end of 2018, well down on the 37 that had applied at the same time in the previous year. They hope to raise $179 million, which is a 70% reduction on the $603 million sought at the end of 2017.
One positive note is the materials sector, with seven proposed listings, showing market sentiment still remains in this area.
The best performing small cap stock for the year was Adriatic Metals (up 188%), followed by Exopharm (17%). Other strong performers were Atomos (up 96%) and Keytone Dairy (75%).