Small cap floats are shining while large caps drag down Aussie IPOs: Deloitte
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Australian IPOs generally disappointed in the first half — but that was due to the under-performance of large floats — while small caps did all the heavy lifting.
That’s according to new research from Deloitte.
While larger cap listings acted as a drag, small caps — which achieved a combined market capitalisation of $763.7 million — were in positive territory.
In the six months to June, a total of 40 companies listed on the ASX, raising $1.8 billion — compared to 57 listings in the same period in 2017, a bumper year for IPOs.
Of those, 16 (40 per cent) experienced negative returns, pushing the weighted average performance to a negative 1.5 per cent.
“First-half local listings in Australia have, so far, failed to make a mark, and a number of larger mooted listings were postponed,” says Deloitte’s IPO expert Tapan Verma.
“The ASX is only up 2 per cent over the last six months, and part of the fall-out from Financial Services Royal Commission and related ASIC enquiries has been delays in listings of financial services companies.”
Among those IPOs delayed were non-bank lenders Prospa Group and Latitude Financial Services.
Here’s a breakdown of Australian IPOs for the first half of 2018:
“We are in a more generally low volatility environment, and a very strong February half-year reporting season saw the largest number of earnings upgrades over consensus forecasts since the GFC,” says Verma.
“ASX performance diverges significantly from other major global exchanges, and this positive global performance, together with strong economic fundamentals here in Australia, should provide a positive backdrop for continued issuance and a sense of optimism in the second half.”
The first half listings had a combined market capitalisation on listing of $4.6 billion.
Excluding listed investment companies and funds, the largest market capitalisation on listing was African-based manganese and iron ore mining company Jupiter Mines with a day one market cap of $779.3 million.
Small cap IPOs dominate
Activity was dominated by smaller capital raises of less than $75 million. Of the 40 IPOs in the first half, only 10 raised capital in excess of $75 million.
Raiz Invest (ASX:RZI), previously known as Acorns, listed with a market capitalisation of $119.2 million and reported a negative performance to June of 30.6 per cent.
Microequities Asset Management Group (ASX:MAM), a boutique fund manager for wholesale and sophisticated investors, raised $19 million with a market capitalisation of $106.4 million. Microequities share price closed 11.3 per cent below its issue price.
Small caps made up 75 per cent of the 40 listings during the half year, in line with 2017.
They had a combined market capitalisation of $763.7 million and raised a total of $271.3 million. The weighted average performance of all small caps listed in the first half of 2018 was fairly flat at 2.1 per cent.
Duxton Broadacre Farms (ASX:DBF) was the largest in terms of market capitalisation of the small caps group and delivered a 3.3% return to investors.
Smiles Inclusive (ASX:SIL), a network of dental practices, had the largest capital raised of small caps at $35 million and a return the end of June -7.0%.
Pick-up in IPO activity on the way
A pick-up in IPO activity in the second-half is underway.
Ian Turner, Deloitte’s National Leader for Mergers and Acquisitions, says the outlook is positive.
“We are heading into a fairly exciting period of strong activity levels … with the demand for public market listings continuing to outweigh the supply of assets,” he says.
Local and regional private equity funds are increasingly considering upcoming exits via ASX listings, and demergers and corporate divestments are back on the agenda for large conglomerates.
“As the market remains open for growth, tech and healthcare companies will continue to command multiples, while financial services valuations are expected to err on the cautious side given the current regulatory backdrop,” he says.