An annual report has revealed that small cap companies continue to make up the bulk of new entrants to the IPO market.
The report by HLB Mann Judd, IPO Watch Australia, found that companies with a capitalisation of less than $100 million continued to dominate the space despite an annual decrease.
HLB Mann Judd partner and author of the report Marcus Ohm said that the companies represented over 70 per cent of the total IPO market.
“There were 72 small cap IPOs undertaken during the year, down on the 88 of the previous year, but nevertheless representing 77 per cent of the total IPO market,” he said.
Despite being down on 2017’s number, Mr Ohm said the number was still above the average of 50 listings.
“The total also remains well above the previous five-year average of 50 listings.”
Overall, the IPO market saw an increase of 106 per cent in total funds raised for a total of $8.44 billion despite there being less listings said Mr Ohm.
“Despite the increase in funds raised, there were only 93 initial public offering (IPO) listings on the ASX in 2018, down from the 110 new market entrants in the previous year, but in line with the five-year average,” he said.
Also down this year were the total number of IPOs that were unable to meet their capital raising goals, said Mr Ohm.
“Only 72 per cent of all new listings were able to meet their target, which was down on both the 2017 and 2016 years which saw 79 per cent and 83 per cent of targets met respectively.”
On average IPOs in 2018 experienced an underwhelming share price performance subsequent to listing, said Mr Ohm.
“Year-end gains were disappointing, as on average, new IPOs for the year decreased in share price by 18 per cent by year end. This is a worse performance than other market indicators, with the ASX 200 recording a decrease of 7 per cent for the calendar year,” he said.
Looking ahead Mr Ohm said that there was likely to be a reduction in IPO activity over the next six months.
“Unsurprisingly only 17 companies had applied to list on the ASX at the end of 2018, well down on the 37 that had applied at the same time in the previous year.”
Mr Ohm said in the current market certain sectors like materials and tech showed strong sentiment but companies needed to clearly communicate their offering to investors.
“The pipeline appears to be soft and reflects the performance of IPOs and the wider market. This was evidenced in the final quarter of 2018 with sentiment perhaps being an important factor.
“Companies considering listing will need to clearly articulate their offerings and provide sound investor communication.”
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