Australian small-cap investors have an unprecedented opportunity to gain exposure to new company floats, with a spike in listings, according to small companies specialist OC Funds Management.
Speaking at OC’s investor briefing, the group’s head of investments Rob Frost commented that the concentration of initial public offerings seeking to list in the final stretch of 2020 was probably the highest he had witnessed in the last 20 years.
In September, the fund manager stated it saw more than 20 prospective IPOs, some as part of a formalised IPO process and others at a more preliminary non-deal roadshow stage.
“One broker that we know of has a pipeline of up to 18 IPOs to bring to market over the balance of the calendar year,” Mr Frost said.
Some examples of smaller IPOs exploring an ASX listing include $1 billion-plus businesses such as software platform Nuix and infrastructure asset Dalrymple Bay Coal Terminal. Microcaps such as mydeal.com.au and Aussie Broadband are reportedly also making a run at the ASX boards.
Mr Frost pointed to the process companies go through prior to listing often involving an NDR consultation with fund managers on aspects of the deal, which explore the business model, growth strategy and any financial information. This can be followed by a more formalised roadshow with the intention of listing on the stock exchange.
“The opportunity to be heavily engaged early in the IPO process gives OC an opportunity to meet with key management, understand the business model and the growth strategy of the company prior to a more formalised roadshow presentation, where we delve into the financial details,” he said.
“At this earlier stage we offer feedback on whether it is the type of business that, subject to valuation, we might be interested in becoming a shareholder in.”
But not all proposed IPOs make it, nor will all of the consulted fund managers decide to invest in each opportunity they review.
“We kiss a lot of frogs,” Mr Frost said.
“But we have already seen some quality businesses and the IPO process offers an opportunity to invest in companies that haven’t yet been efficiently priced by the broader market. Therefore, if we do our job well, we can add alpha for our clients by investing in IPOs which subsequently come onto the ASX as a premium.”
OC is distributed by Copia Investment Partners.
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
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