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Good things come in small packages – and good returns come from small IPOs, says OnMarket’s Nick Motteram after crunching the 2017 numbers in his annual IPO report.

What were the key Initial Public Offering stats in 2017?

In total there were 113 IPOs in 2017 – up from 96 IPOs in the previous year.

The average year-end return for all IPOs was more than 61 per cent — up from 25 per cent in 2016. This is an even more impressive performance, given the ASX 200 was only up 7 per cent for the year, meaning IPOs outperformed the ASX by over 54 per cent.

The other point of note is that the total capital raised for the year was $6 billion, down from $8.3 billion in 2016, meaning there was a higher proportion of smaller IPOs.

What was behind the smaller size of IPOs in 2017?

There were fewer big-end-of-town deals last year, attributable to both investor caution, but also due to a number of large IPOs failing to materialise.

A number of larger deals including Alinta Energy’s $4 billion IPO and Officeworks’ rumoured $1.5 billion IPO failed to come down the line. Alinta was sold to a buyer from Hong Kong, and Officeworks pulled due to uncertainty with the introduction of Amazon.

And there just wasn’t the supply of capital willing to meet valuation expectation in the big end of town.

What were the biggest trends in the IPO market?

It was all about the small raises in 2017. Those that raised less than $50 million finished the year up an average of 70 per cent, compared to 23.5 per cent from IPOs greater that $50 million.

That’s not a bad return for those willing to participate in the small and mid cap listing space.

The other key trend was the dramatic increase in small resources IPOs — with 35 in 2017, up from 12 in 2016. On the flip side the number of Information and Technology IPOs saw only 11, down from 25 in 2016.

What we saw in 2015-16 was a move to the tech stocks as the resources fell out of favour. But now investors are being more selective about where they put their money in the tech sector, and resources have come back into vogue.

What sectors were the best performing?

The success of IPOs was largely in line with the trends in the market – those that did the best were in thematics such as cobalt, medicinal cannabis and fast-moving consumer goods.

The best performing IPOs for the year included Cobalt play Ardea Resources (ASX:ARL) which listed in February at 20c and closed the year at $1.90, up 850 per cent.

Pot stock Cann Group (ASX:CAN) listed in May at 30c and finished the year at $2.74, up 813 per cent. There was also baby food maker Wattle Health (ASX:WHA) up 815 per cent.

How do the results from last year bode for the year ahead?

This year should again be a fairly buoyant year again. There has been a bit of volatility out of the US this week but we should see another good year.

I think small cap resources will continue to have their time in the sun as investors focus on the battery minerals of cobalt and lithium. We will likely see an uptick in the number of tech companies coming to market post the lull in 2017.

While they are not big deals, there is a lot of interest. The key point is that investors are being selective and willing to back those industries and those companies where they believe there is a compelling story.

Despite the ASX tightening its listing rules for small IPOs, we don’t see this having a major impact on the number of smaller cap listings.

We are also likely to see a step up in the number of larger IPOs coming out this year, such as personal loans platform Latitude Financial – estimated to be raising as much $5 billion.

But it is just a question of who and when.

 

Nick is Managing Director, OnMarket and guides IPO and crowdfunding companies through the capital raising process.

Nick was formerly the Head of Power & Utilities for UBS Investment Bank in Asia. During his 5 years in the region, Nick lead some of Asia’s largest ECM transactions in including the Hong Kong IPO of China Longyuan Power, China’s largest renewable energy company; and the IPO of Reliance Power, the largest IPO ever conducted in India.

Prior to Hong Kong, Nick worked with UBS Investment Bank in Sydney, and was a member of UBS’s market leading Utility & Infrastructure team, working with some of the leading utility and infrastructure players in Australia.

Nick spent his university years between the bar at St. Andrew’s College, a rowing boat, and lectures for his Chemical Engineering and Commerce double degree.  Nowadays, Nick spends his spare time trying to keep up with his energetic young family.

 

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