IPOs struggle to make first-half mark as second half looks brighter
9 August 2018: Australian IPOs delivered a muted performance in the first half of 2018, with more losers than winners, but positive global performance, a record year for the US markets and strong local economic fundamentals provide a real sense of optimism going into the second half.
Key points from Deloitte’s latest IPO update, covering the half-year to 30 June 2018, include:
- 40 companies successfully listed, raising $1.8 billion, compared to 57 listings in the same period in 2017
- 16 (40%) experienced negative returns, with
weightedaverage performance of -1.5%
- Financial services
wasthe dominant sector, accounting for 69% of capital raised – howeverlisted investment funds represented a significant portion of this raising
- Only 10 (25%) of listings raised capital in excess of $75 million.
Market capitalisation, capital raised and number of listings
According to Deloitte’s Lead Partner for IPO Transaction Services, Tapan Verma: “2017 saw more IPOs completed globally than in any year since the GFC, and six months ago, a stronger pipeline than ever pointed to a stellar 2018.
“But first-half local listings in Australia have, so far, failed to make a mark, and a number of larger mooted listings were postponed. Yes, the ASX is only up 2% over the last six months, and part of the fallout from Financial Services Royal Commission and related ASIC enquiries has been delays in listings of financial services companies, most notably non-bank lenders Prospa Group and Latitude Financial Services.
“But we are also in a more generally low volatility environment, and a very strong February half-year reporting season saw the largest number of earnings upgrades over consensus forecasts since the GFC.
“ASX performance diverges significantly from other major global exchanges, and this positive global performance, together with strong economic fundamentals here in Australia, should provide a positive backdrop for continued issuance and a sense of optimism in the second half.
“While overall performance was disappointing -1.5%, there were some bright spots. With the larger cap listings acting as something of a drag, the more positive news came from small caps, which achieved a combined market capitalisation of $763.7 million, having raised $271.3 million, and their weighted average first-half 2018 performance remained positive.”
Similar to trends in capital raised and market capitalisation values were driven by the energy and resources, and financial services sectors, which accounted for 26% and 62% of total market capitalisation, respectively. Consumer goods and services outperformed the market, with a 36.4% return, followed by telcos, media and technology at 21.6%. Retail achieved the worst result of -24.8%.
Weighted average performance, market capitalisation (by sector)
The class of 2017
“Looking back at 2017 listings, they recorded a weighted average increase of 31.5% from listing date to 30 June 2018,” Verma said.
“The strong performance of emerging companies, with less than $75 million capitalisation, to December 2017 was followed by a large correction of around 25% in the six months to 30 June 2018. The larger companies from the class of 2017 experienced a more modest correction of 3.0% in the same period with overall performance from listing at around 20% as at June 2018.”
According to Deloitte’s National Leader for Mergers & Acquisitions, Ian Turner and : “We are expecting to see a pick-up in activity in this second-half already underway. Local and regional private equity funds are increasingly considering upcoming exits of investee companies via ASX listings, and demergers and corporate divestments are back on the agenda for large conglomerates.
“As the market remains open for growth, tech and healthcare companies will continue to command multiples, while financial services valuations are expected to err on the cautious side given the current regulatory backdrop."
Head of Equity Capital Markets Advisory, Aaron Black, said: “More dual-track processes are also likely going forward as the IPO market offers value for quality assets, and while absent from the IPO list for the first-half of 2018, foreign-domiciled businesses, and particularly growth companies based in Israel, Ireland and the US, are continuing to explore the ASX as an attractive option for liquidity.”
Turner added: “The outlook is positive, and we are heading into a fairly exciting period of strong activity levels, both on the M&A and ECM fronts, with the demand for public market listings continuing to outweigh the supply of assets.”