Saturday 31 May 2014
Publication: The Sydney Morning Herald
Journalist: Jared Lynch
Market - Company debuts raise $9.2b
As Australia experiences its strongest flow of company floats since before the financial crisis, the winners and losers in the great IPO rush can be revealed.
The appetite for company debuts on the ASX has exploded in the 12 months. The amount of funds raised has soared to $9.2 billion - more than the combined $8.8 billion raised over the three years to 2012.
Fund managers attributed 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 funds for the year with $995.6 million, has surged more than 10 per cent since its debut last Friday.
Credit reporting business Veda also had an impressive start, with its shares rocketing 80 per cent - catapulting it into the top five best performing new listings - since its November float.
“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,” said Citi’s head of capital markets origination, John McLean.
The IPO market fired up in the final quarter of last year, 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 away 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 its 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.”
Insurance comparison website iSelect was the second worst performing IPO - its shares slumped 40.1 per cent since it listed last June - after a kerfuffle over earnings guidance, which triggered an Australian Securities and Investments Commission inquiry. And transport company McAleese, which was the worst performing IPO for the year, has plummeted 69 per cent after issuing two profit warnings in two months.
Still, investors have rewarded more companies than they have punished, with 60 per cent of floats trading in positive territory.
Retail investors have been particularly interested in companies with strong brands such as Nine Entertainment, owner of the Nine Network, which was the year’s second biggest float, raising $624.64 million. The company’s shares have risen 6.8 per cent since listing.
Beacon Lighting, which sponsored Channel Nine’s home renovation show The Block, has risen 54.5 per cent since its March listing.
Wilson Asset Management’s chief investment officer Chris Stott attributed the strong performance to solid management and growth prospects.
Australian IPOs in the past 12 months, best performing
Fertoz $4m floated in July at 20¢ a share ▲ 180%
Valence Industries $10.14m floated in November at 20¢ a share ▲ 132.5%
Freelancer $15m floated in October at 50¢ a share ▲ 100%
Veda Group $341m floated in November at $1.25 a share ▲ 80%
Sealink Travel Group $16.5m floated in September at $1.10 a share ▲ 60.23%