In 2017 the market witnessed a shift in confidence in the resources sector (which comprises Materials and Energy companies). This was primarily evidenced by increasing subscription rates over the course of the year. Interestingly, although the number of listings in each half of the year were similar (15 listings in the January and April quarters compared to 17 listings in the September and December quarters), subscription rates further improved in the second half of the year.
Companies which listed in the January and April quarters recorded an average subscription rate of 94% of the amount sought. In comparison, companies that listed in the September and December quarters recorded subscription rates of 133% and 203%, respectively.
The improved sentiment towards resources stocks has developed on the back of some excellent returns on share prices throughout 2017, especially from the traditional mining states of Western Australia and Queensland.
Amongst states with more than two IPOs, Western Australian resources IPOs were the strongest performers averaging first day gains of 25% and average price increases at the end of the year of 103%. Queensland’s performance was not far behind, with an average of 19% for first day gains and average share prices ending the year up by 91% on initial listing price.
Victoria also featured in the resources listings with five IPOs. However, the average performance did not fare well, finishing the year in the red by 6%. Overall, it was a very positive year for resources IPOs which finished the year up 68% on average.
While the number of listings were consistent in each quarter, the funds raised were far greater in the second half of the year. The September quarter recorded $141.9 million (or 43%) in fundraising of the year’s total of $332.3 million. The December quarter also performed well, with $112.1 million raised (or 34%).
The September and December quarters also recorded the highest first-day gains, with 15% and 23% respectively. Although still relatively new to the market, the companies that listed in the September quarter recorded average year-end gains of 40% whilst the December quarter achieved 14%. From a shareholder-return perspective, the June quarter performed the best finishing the year with an average increase of 146%.
By volume of listings, Western Australia recorded 66% of the resources IPOs for the year (21 of 32), and raised $205.9 million. Whilst Queensland only had three listings, these were larger on average and raised a total of $58.5 million at an average raising of $19.5 million.
Most IPOs were seeking multiple commodities. Over half of all new listings included Gold projects (53%). Copper also appeared in more than a third of resources IPOs (34%). Cobalt and Lithium continued to perform well on the back of the growing demand for batteries, appearing in seven and five listings respectively. The rising price of oil in the latter half of the year has yet to be reflected directly in the IPO market. There was one listing each in the key Energy stocks – oil, gas and coal. The analysis shows no direct correlation between the sought-after commodity and the share price performance, underlining that the market supports good projects.
Buoyancy appears to have returned to the sector with another nine listings in the pipeline for 2018. Strong commodity prices as well as the impressive performance of resources IPOs throughout 2017 should support what will be an active year ahead.
Disclaimer: The ASX GICS codes in 2017 included three IPOs as Material listings which are not directly involved in the mining, exploration or oil and gas industries. For the purposes of the analysis within the IPO Watch Report, these listings have been included within their respective sector as opposed to the Materials sector.