The “strange” IPO market continues, with strong growth in equities market-wide and low interest rates failing to spark interest from potential buyers.
It has led to just 40 companies floating in the financial year, with larger floats including Latitude Financial and Retail Zoo failing to impress investors.
Speaking to nestegg, HLB Mann Judd’s partner, corporate and audit services, Marcus Ohm, has explained the strange IPO market and given some explanation as to why Aussie investors are not taking advantage of new companies.
The IPO expert indicated that investors have been reluctant to accept higher multiples when companies try to float, leading to undersubscriptions.
Noting it as “really strange”, Mr Ohm said it’s despite the wider market going quite well in the low interest rate environment.
The difference this time, according to the partner, is that “investors have previously been willing to accept the price being put to them”.
“Suddenly people have said ‘we are not happy to support the float at this particular multiple’.”
Challenges for the retail investor
The flow-on impact is seeing retail investors “facing increasingly difficult circumstances” as they look to allocate part of their growth portfolios towards new investments such as IPOs.
“You haven’t really got a wide spread of IPOs to choose from. The large IPOs have been a little bit hit and miss in terms of whether they have been successful,” Mr Ohm told nestegg.
Not only are the larger institutions failing to raise capital, he also explained that smaller companies such as fintech and junior explorer mines are not even attempting to float.
“We have had some very high-profile failures and the smaller ones, normally we would have a lot of junior explorers, tech companies, they haven’t really been as present as much,” Mr Ohm said.
Should mum and dad investors buy IPOs?
There’s a lot of potential risks and rewards in IPOs, and so Mr Ohm has advised that anyone looking to invest in the market needs to do their research.
“One thing to make sure is that you really understand the companies,” Mr Ohm warned.
“There’s potentially opportunities there, but you have less to choose from.”
Consideration of IPOs can be part of a broader strategy, according to the expert, but the present time may not be ideal for IPO investment – but this is based on individual circumstances and the current lower volumes of options available.
“The wider market has been doing quite well... that’s where you need to get that advice and skip the IPOs for the time being,” Mr Ohm concluded.
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