Strong performance from the IPO market in 2019 was not enough to bring companies or investors to the party, with the number of options for investors falling to a four-year low, suggests an industry expert.
HLB Mann Judd partner Marcus Ohm explained why, following a number of high-profile failures to float, it is not all doom and gloom for investors.
The small-cap investor noted that while the year was notable for the number of IPOs that were shelved or withdrawn, those that did list performed well.
“The pulled float by Latitude Financial, and others including Retail Zoo and Onsite Rental Group, highlighted some of the challenges of going public, but overall in 2019, new entrants performed well, particularly compared to the previous year,” Mr Ohm said.
“The average year end gain across all companies was 34 per cent, and the average first-day gain was 24 per cent.
“On average, new floats outperformed the market generally, with the All Ordinaries increasing [by] 19 per cent in value over the year.
“The small cap segment performed particularly well, recording average increases of 47 per cent compared to initial listing price.”
Mr Ohm believes Australian investors are looking for quality, with talk of the small cap model being broken an “extreme view”.
He explained: “This comment about the small cap model being broken, it wasn’t broken in the first part of 2018 when a lot of small caps were listed, and it wasn’t broken the year before.
“People are just looking for return elsewhere; people are being rational investors.”
Rather than the model itself being broken, the investor believes Australian investors are sophisticated, with IPOs needing to show value to investors.
“There seems to be less appetite to put money into speculative investments,” Mr Ohm said.
Mr Ohm believes there are a number of factors making markets “jittery” at the moment, including high valuations, geopolitical issues and even the coronavirus.
Looking ahead to 2020, Mr Ohm suggests the IPO market is set for a subdued start to the year.
“Only 13 companies had applied for listing to the ASX at the start of 2020, down from 17 the year before, and significantly down from 37 at the start of 2018,” Mr Ohm said.
“Materials stocks make up the majority of the proposed listings, with six listings, and it will be interesting to see how this sector performs in 2020, considering its muted performance in 2019.
“It is also noteworthy that there are no proposed IPOs of any significant size. Overall, the pipeline is soft and reflects the challenging conditions in the IPO market at present.”
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