A slow start to the IPO market in 2019

Despite a relatively slow start to the year for initial public offerings (IPOs), new listings have performed well in terms of share price with good subscription levels for the six months to 30 June, according to the HLB Mann Judd IPO Watch Australia Mid-Year Report.

The first six months of 2019 was subdued with only 23 companies listing but according to HLB Mann Judd partner and author of the report, Marcus Ohm, this was possibly reflective of equity market conditions towards the latter half of 2018, and also a fall in the number of materials companies listing.

“The majority of listings this year occurred in the second quarter, which is in contrast to 2017 and 2018 which saw an even spread of IPOs throughout the year.

“A total of $823 million was raised during the H1 of this year which, again, is significantly down on the previous two years with $2.5 billion and $1.9 billion being raised in the first half of 2018 and 2017 respectively,” he said.

The small cap sector (less than $100 million market capitalisation at listing) has been notably subdued with only 13 listings. In comparison, 2018 recorded 31 small cap listings in the same period and 72 over the 12-month period.

Mr Ohm said an underlying reason behind the drop in IPOs this year compared with the last couple of years has been the materials sector.

“Materials had only three new listings for the period, compared to 16 for the same period last year. The reduced activity perhaps reflects broader macroeconomic issues and current investor sentiment,” he said.

From a share price perspective, however, IPOs have performed well, with 17 of the 23 IPOs recording first day gains for an average gain of 21%. In terms of share price growth post-listing, this performance continued with an average gain of 63% across all new entrants from listing to 30 June 2019.

“This is a particularly good result and represents a return to the trend of IPOs tending to outperform the market which has itself had a good six months. The majority of industry sectors also performed well, with ten sectors recording first day gains, and ten sectors also recording positive gains on average to 30 June 2019,” said Mr Ohm.

There was improvement in IPO subscription rates for those companies that did list during the first six months of 2019 compared to the prior corresponding period. A total of 19 new listings (83%) met their subscription targets compared to 74% in the six months to 30 June 2018.

“While the volume of IPOs was lower than in recent years, those companies which did list generally were well supported by investors both at listing and also subsequently,” said Mr Ohm.

The report provides a summary and high-level analysis of IPO activity within Australia and is produced on a six-monthly basis. It includes a review of activity during each period as well as detailed analysis and case studies.

HLB Mann Judd is an Australasian association of independent accounting firms and business and financial advisers, with offices in Australia, New Zealand and Fiji.