Resources, tech stocks drive IPO boost as returns thrive
IPOs on the Australian Securities Exchange have had a good year as resources companies and technology sector stocks account for almost two thirds of new listings.
Initial public offerings on the Australian Securities Exchange have had a good year as resources companies and technology sector stocks account for almost two thirds of new listings. Tech companies have also helped boost average returns from IPOs in recent years, data reveals.
In the first quarter of 2018, 20 companies listed on the ASX, raising a total of $421 million with an average value of $21 million. This compares to 26 companies listing in the first quarter of 2017, raising a total of $230 million with an average of just $8.8 million, according to data from HLB Mann Judd.
Marcus Ohm, Partner, Corporate and Audit Services at HLB Mann Judd, says the most active sector has been materials, followed by technology – a trend he expects to continue.
“So far in 2018 to the start of May, we have seen 28 IPOs, of which 12 are materials, so it looks at this stage that materials is going to have another very good year," says Ohm.
“After materials, the next largest sector is tech, with six out of 28 listings. These two sectors between them have comprised almost two thirds of new IPOs."
The March quarter has generally averaged about 10 listings over the period between 2013 and 2016, so 2018’s performance in terms of the number of listings stands out, says Ohm. The period is traditionally quiet because of the January holidays and February’s reporting season.
"We would expect that the IPO market will continue to show increased activity for the rest of the year in terms of number of listings driven at the small-cap end by the material sector," says Ohm.
"There was a marked shift in both 2017 and 2016 towards an increasing proportion of IPOs being comprised of small caps, following a quiet period when large caps predominated."
Dominic Stevens, managing director and CEO of ASX, said the exchange's business continued to grow, and returns for investors from IPOs on average have been healthy.
"The returns from new listings in general have been greater than investing in the index," he said at the recent 2018 Macquarie Australia Conference.
Between January 2012 and February this year, there have been 784 listings. For a $1 investment in each of the listings, "the internal rate of return is approximately twice the return for the overall market," or 13 per cent, compared to 6.6 per cent, said Stevens. Technology stock IPOs have reaped even greater returns of up to 16.4 per cent.
"This should not surprise us, as investors would be looking for a greater return from a portfolio of companies that are inherently more volatile. This listings dataset would include companies that have not performed well at all, and companies that have had stellar performance," said Stevens.
At the end April, there were 2279 companies listed on the ASX. Of these, 270 are foreign entities, with a market capitalisation of $1.5 billion. Israel is well represented with 17 companies listed.
"Companies are attracted to Australia's deep pool of investable funds, the largest in Asia, valued around $2.6 trillion, sophisticated analyst and investor community, proximity to Asian markets, and high regulatory and governance standards," Stevens said.
More generally, many floats have been oversubscribed, indicating strong investor support.
The biggest float in the first quarter of 2018 was the float of Jupiter Mines, which raised $240 million.
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Nicki Bourlioufas is a Morningstar contributor. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria.
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