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IPOs to watch for in 2021

Emma Rapaport  |  17 Feb 2021Text size  Decrease  Increase  |  
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Airbnb’s initial public offering at the close of 2020 saw the company's value soar from $35 billion to $100 billion, suggesting that even a global pandemic couldn’t dim investors’ appetite for hot new floats. Closer to home, Australian online retailer Adore Beauty (ABY) launched one of the biggest IPO on the ASX in October 2020, raising over $250 million while online book retailer Booktopia took another stab at listing.

With a new US president and the covid-19 vaccine being rolled out at pace, global stock markets are back in “risk-on” mode, and more companies are set to make the leap to public entity.

We look at some of the highlights for investors in the coming months. At least one is familiar to Australian consumers, with Sydney-based online hiring marketplace Airtasker among the imminent IPOs.

2020: IPO market shook off covid blues

Australia’s IPO market was relatively muted in the first half of the year as listing hopefuls waited for greater economic certainty. But things turned around in the second – and fast. Seventy-four hit the ASX listed in 2020, according to the latest HLD Mann Judd IPO Watch Report. Sixty-eight per cent of those occurred in the last quarter of 2020, with 28 companies listing in December. Total listings were down on the five-year average of 89 new entrants, but up on 2019’s 62 new market entrants.

Morningstar equity analyst Brian Han has attributed the rush of IPO-hopefuls to several unique dynamics

“Firstly, the inexorable rise of the technology sector, both in Australia and in the US, has encouraged many companies even with a whiff of anything online or digital in their business models to explore a secondary listing,” Han says.

“Secondly, the working, playing, and everything else-from-home phenomenon triggered by the coronavirus lockdown has propelled the stock prices of many companies catering to this trend on the bourse. There has been a significant pull-forward in demand for anything consumers can lay their hands on to alleviate their boredom at home or to set up shop at home.”

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New companies raised a total of $4.98 billion for the year, a significant reduction compared to previous years with $6.91 billion being raised in 2019 and $8.44 billion in 2018 HLD Mann Judd partner Marcus Ohm says.

Han says a glaring feature of many IPOs on the ASX since April 2020 was the lack of profitability, with just 10 of the 36 debuting on the board making money at the operating earnings level.

MORE ON THIS TOPIC: Investing basics: what is an IPO?

“The opportunism doesn’t end there,” he says. “Of the 36 companies just listed, we believe 12 fit into the bucket of those taking advantage of the insatiable demand for anything technology, digital, cloud or online. It seems appetite and valuation multiples for these companies grow depending on the number of times these buzz words are touted in the prospectus.”

IPO activity by quarter

Source: HLB Mann Judd IPO Watch Report

Market entrants garnered strong investor support. Ninety-three per cent of all new listings raised the target amount of funds sought, up on 2019 (84 per cent of targets met) and 2018 (72 per cent of targets met). Share price performance was also strong. Fifty-five new listings, or 74 per cent of all IPOs during 2020, ended their first day above their listing price.

Who’s listing in 2021?

Nineteen companies have applied for listing on the ASX in early 2021. There is a “notable spread between industry sectors”, with nine represented, says HLD Mann Judd. Airtasker (ART) is among the most significant, seeking to raise $83.7 million at 65 cents a share. Morgans is leading the deal due for 22 March. The company told investors that 4.3 million registered users had joined its marketplace since inception.

“The Materials sector is the largest contributor to the proposed listings with a total of four listings,” HLB Mann Judd analysts say.

“All of the proposed Materials listings relate to gold projects, reflecting the strength of the gold price.

“Another sector with multiple applications in the pipeline is the Software & Services sector with three applications.”

ASX upcoming floats and listings in 2021

Source: Morningstar Direct, ASX, Listing dates are proposed dates for first quotation of securities set out in the entity's prospectus or info.

Globally, Morningstar Pitchbook has a list of more than 40 companies that are likely to list in 2021. Here’s the list of pre-IPO global companies our analysts are monitoring:

Source: Morningstar Pitchbook

Stock trading app Robinhood looks like it’s going ahead with an IPO despite the brand damage around its blockade of stock purchases targeted by Reddit. Pitchbook notes that the company looked to have a valuation of around US$11.71 billion as of 1 October 2020. We will see if that number shrinks if upset users follow through with leaving the platform.

Between the bitcoin world and your corner bank branch, SoFi or Social Finance is mobile-first personal finance. With a light feel to its user experience and depth of low-cost offerings from banking, to student loans, mortgages, free stock trading and access to crypto through a partnership with Coinbase – if this company takes away a customer from current big banks, they may never need to come back. The company is reported to be going public through Chamath Palihapitiya’s acquisition vessel (SPAC) Social Capital Hedosophia Holdings Corp V (IPOE) and has Healthcare of Ontario Pension Plan among its investors, according to Pitchbook.

Three more companies we're watching, Faraday Future, Lucid Motors, and Karma Automotive, are electric vehicle companies. So many new contenders in one new industry point to a pace of technological change that is further accelerated by a need for urgent action around our climate. Legacy automakers have to move faster than ever to be on the right side of this trend.

A handful of consumer-facing companies are preparing to float in London this year, including takeaway app Deliveroo and the iconic Northamptonshire boot maker Dr Martens.

Deliveroo is taking on the likes of food delivery giant Just Eat Takeaway (JET), which is worth just over $21 billion (£12 billion) and is listed in London and Amsterdam. Pitchbook values Deliveroo at around US$6.5 billion based on its last financing round in mid-January, when it raised US$180 million from investors such as fund manager Fidelity. Deliveroo isn’t a UK company per se; while it was started in London in 2013, chief executive and founder William Shu is a US entrepreneur and was mulling a New York listing. But London got the nod because the company has already made inroads into the UK’s biggest cities and has been boosted by lockdown life. Previously loss making, Deliveroo turned profitable in its last financial period, and has attracted investment from retail giant Amazon (AMZN), whose stake has been cleared by competition authorities.

Another multi-billion-pound float is Dr Martens, which traces its roots back to post-war Germany but first mass produced footwear in the UK in the 1960s. Several generations of alternative fashion and music scenes have adopted the chunky-soled shoes and boots, and the brand has recently gained traction with Instagram influencers. The company issued shares at 370p on its first day of conditional dealing on 29 January, with the first full day's trading on 3 February.

Warren Buffett’s “buy what you know” mantra could tempt some UK investors (and former punks) to buy into the IPO. But AJ Bell’s Russ Mould strikes a note of caution amid concerns the shoes may not be as well made as in the past: “Could it be that the business has suffered under private equity ownership? Many investors are sceptical about backing companies that are being sold by private equity, for fear they might have suffered from underinvestment and been subjected to a ‘quantity over quality’ approach for production.”

According to broker IG, some potential upcoming IPOs this year include cyber security firm Darktrace, customer feedback aggregator Trustpilot, and McLaren , which owns a Formula 1 team and produces supercars with a bigger price tag than the average UK house. India conglomerate Tata, which owns Jaguar Land Rover, has been expected to spin out the car maker for many years now, so will 2021 be the year this finally happens?

Should you get in the game?

With stock markets in bullish mode and some companies multiplying in value over short time periods, investors large and small could be forgiven for thinking that IPOs are an easy way of making money. Airbnb (ABNB) is up nearly 200 per cent on its float price, for example. On the ASX, riding the “anything online, technology and in-home” theme has mostly been a profitable strategy for investors. For instance, the average return on the IPO price for Technology bucket of stocks was 105 per cent between listing and 17 November 2020. In comparison, the ASX 300 index was up 29 per cent between April and November 2020.

But for every Airbnb, there’s an Uber (UBER) - which was much hyped but has only just regained its flotation price after two difficult years as public company. IPOs like Ant in China can become so high profile that politicians get involved, a risk that emerging market investors have to bear in mind.

Han says the buoyant IPO environment indicates rising risk tolerance among public investors.

“Whether this thematic-based investing, without regard to near-term earnings or even longer-term fundamentals, is closer to the beginning of its journey or the end, only time will tell,” he says.

“On the one hand, there was a time when a track record of earnings (even just a couple of years) and an established industry position, or at least a trajectory towards it, were pre-requisites to an IPO. On the other hand, perhaps we are entering a ‘this time, it’s different’ era of investing where themes and blue-sky potential trump underlying earnings and fundamental prospects.”

Han is not making any recommendations on upcoming IPOs. “Investors will get plenty of that from the sponsoring or underwriting brokers to these issues,” he notes. However, he urges investors to delve a little deeper into the drier bits of their prospectuses (sections such as risks, purpose of funds, financial information, forecasts), rather than get too excited by the prettier bits (colourful front sections with smiling customers, fancy photos and hockey-stick growth charts).

is the editorial manager for Morningstar Australia. Connect with Emma on Twitter @rap_reports. You can email Morningstar's editorial team editorialAU[at]morningstar[dot]com

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