Foreign listings lift Australian IPO market as 2016 pipeline remains resilient
26 April 2016: Despite Australian and global share market turmoil, first quarter 2016 ASX IPO volume was comparable to the same period in 2015, with nearly 50% of listings involving companies based outside the country, or whose primary operations are overseas.
The quarter to 31 March 2016 saw 13 listings (12 in Q1 2015), with combined market capitalisation of $796m slightly above the $754m for the same 2015 quarter.
The start of the year typically tends to be the window for smaller raisings, but this is likely also an indicator of the level of capital raising activity to come this year. Only two listings have exceeded a market capitalisation of $75m: Oneview Healthcare PLC ($194m) and Ding Sheng Xin Finance Co Ltd ($310m).
Deloitte Corporate Finance partner and Head of Transaction Services Ian Turner said: “While market volatility was a hallmark of 2015, our recent 2016 IPO Report showed that, particularly in the technology and financial services sectors, new listings remained very much in favour.”
“Volatility remains the name of the game in 2016, and first quarter IPO activity remains solid. Investors appear unperturbed, and performance, while more subdued, is still well above market.”
Compared to Q1 2015 average gains of 18.2%, Q1 2016 has seen new listings achieve average gains of 7.6%. The ASX 200 declined 4% over the same period in 2016.
Stand-out 2016 new listing performers were Recce Ltd (up 30%), JC international Group (also up 30%) and Oneview Healthcare (up 20.7%). The poorer performers were largely small-cap stocks which tend to underperform in volatile markets, and included Total Face Group Ltd (which fell 25.0%) and Vectus Biosystems (down 19.4%.)
Following on from the increase in foreign listings in 2015, nearly 50% of 2016 listings were domiciled outside of Australia or have primary operations overseas. Oneview Healthcare was the first Irish company to list on the ASX, Soon Mining Ltd principally operates in Ghana, and Ding Sheng Xin Finance Co Ltd, Global Fortune Investment Ltd and JC International Group Ltd are all Chinese-domiciled.
Tapan Verma, Deloitte Director of IPO Transaction Services said: “The ASX, which offers candidates the option to list under the Assets Test and carries less onerous free-float requirements than some of its Asian counterparts, is being increasingly favoured by foreign companies (particularly those in the Asia-Pac region), and the recent events on the Chinese markets make this an even more attractive proposition.”
“This however brings with it increased regulatory requirements - we are seeing a continuation of ASIC’s proactive approach to scrutinising public listings with a focus on businesses in emerging markets. This is an area that has been on the corporate watchdog’s radar over the last couple of years with a number of hopefuls that lacked quality or posed increasing regulatory concerns having been pushed back”, Verma added.
FX Primus was reportedly one such IPO candidate where ASIC had a number of concerns and an interim stop order was placed on the FX Primus Group Limited's prospectus on April 30, 2015.
2014 and 2015 listings
Turner said: “Average performance of 2015 listings to 31 March 2016 was squeezed from the end of 2015, unsurprising given the downward pressures on global equity markets. Interestingly, nearly half these listings have delivered performance above the market over the last three months, with some clear stand-outs such as IDP Education and BWX Ltd. The Class of 2014 has also seen growth in average returns over this period.”
Average 2015 listing performance to 31 March 2016 was 11.6%, down from 18.2% at 31 December 2015. Top performers continued to be Appen (218.0% gains) and BWX (185.3% gains). 2014 listings saw average return growth to 31 March 2016 of 38.2%, up from 37.3% at 31 December 2015.
“Reporting season results for full and half-year accounts ran through February and provided confirmation, with some exceptions, that the market is closely scrutinising the performance of newly listed companies and their ability to achieve prospectus forecasts”, Verma said.
“And for those companies reporting half-year results, the market rewarded when annualised earnings were on or above forecast, and penalised where they weren’t. We would expect to see investors and lead managers increasingly sharpen their focus on prospectus financials and the key fundamentals of the business (beyond just the prospectus forecasts) in light of some of the recent misses.”
Of the positive performers, with December year ends, MYOB exceeded its prospectus forecast earnings by 1.2%, and experienced a similar share price jump on the result. Traditional Therapy Clinics also exceeded forecast earnings for FY15 by 14.6%, leading to a share price increase of 5.3% on the day of announcement.
But global turmoil overpowered the ability of financial services companies, reporting full year results, to achieve similar gains. Pepper Group and Eclipx Group, both exceeded prospectus forecast earnings by over 3% but saw their share price fall by 1.3% and 10% respectively. Eclipx’s share price performance was also impacted by the sale of Ironbridge Capital’s remaining shareholding following a release from escrow.
Of the companies reporting half-year earnings for December 2015, Link Administration appears to be on track to beat forecast earnings of $95.5m and was rewarded with a share price increase of 2.3%. Hardest hit were Amaysim and Temple and Webster – their share prices fell 37% and 66.7% respectively following the announcement of half year results which appear to indicate they are significantly behind forecast earnings. More recently, McGrath, which listed in December 2015, has put its shares on a trading halt to review the forecast following tough property market conditions and an outlook which did not align to that set out in the prospectus. Half year results indicated that prospectus earnings would be missed by over 5%.
Despite the recent volatility and concerns around certain industries, particularly property, the 2016 local IPO window has opened further. Wisetech Global’s Q2 listing saw its shares rise 16.2% on debut, and the ASX website showing a strong pipeline of 20 potential listing.
“The IPO pipeline remains resilient, with some of the strongest including Reliance Worldwide Corporation, Camperdown Dairy International, StatePlus (currently running a dual track process), Scottish Pacific, Bravura Solutions, Afterpay and Singapore’s Fastacash,” Turner said.
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