Capital raising conditions have deteriorated since the Aussie bull market peaked in August last year, presenting a series of challenges for “expensive” ASX Limited, according to analysts.
A Morningstar report by analyst Gareth James last week noted that despite strong growth in capital raisings in the first half of fiscal 2019, largely driven by the $16 billion Coles demerger from Wesfarmers, conditions have weakened for initial public offerings.
“Since the bull market peaked last August, capital-raising conditions have deteriorated, causing initial public offerings like PEXA to be cancelled in the second quarter of fiscal 2019,” Mr James said. “[We] don’t believe first-half growth will be repeated.”
Despite strong capital-raising activity, the number of stocks listed on the ASX fell slightly in December and is up only 0.4 of a percentage point on the prior year.
“Although ASX hopes to increase listings, particularly in the overseas technology sector, we remain sceptical about its ability to do so,” Mr James said.
Morningstar’s view is that the ASX Limited, as a stock, continues to look expensive. The analyst has given it a fair value estimate of $52 a share; he stock was trading at $62 when the market opened last Friday.
Crackdown on listed Chinese companies
The ASX delisted a number of Chinese companies in 2018 including China Dairy, Wolf Petroleum and Premiere Eastern Energy.
Perth-based group Traditional Therapy Clinics, which owns wellness clinics in China, was also delisted and has now been hit by winding up orders from the corporate regulator. ASIC is concerned that the company has no directors residing in Australia and no company secretary. It also allegedly failed to lodge its half-year review for the period ending 30 June 2018.
The delisting of Chinese companies in 2018 is part of a larger move by the ASX to clean up the exchange and crackdown on companies that have failed to lodge accounts or are believed to have corporate governance problems.
While the first half of 2018 was generally better than the second for IPOs, Deloitte highlighted that newly-listed Aussie stocks delivered a “muted performance” in the first half, with more losers than winners.
Forty companies successfully listed in the first half, raising $1.8 billion, compared to 57 listings in the same period in 2017, according to the Deloitte Half-year 2018 IPO Report.
Sixteen of them, or 40 per cent, experienced negative returns. Financial services was the dominant sector, accounting for 69 per cent of capital raised. However, listed investment funds represented a significant portion of this raising.
Only 25 per cent of the companies listed in the first half of last year raised capital in excess of $75 million.