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US-China, Hayne inquiry and Brexit weigh on ASX listings

Emma Rapaport  |  25 Feb 2019Text size  Decrease  Increase  |  
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The number of Australian company IPOs is tipped to fall in the first-half of calendar 2019, for reasons that include ongoing US-China uncertainty, Brexit and the banking royal commission.

A tighter lending environment is one of the flow-on effects of the Kenneth Hayne-led inquiry into Australian financial services, says Jude Lau, a partner with accounting and financial planning firm HLB Mann Judd, who views this as an unexpected consequence.

Also on the domestic front, the looming federal election is creating uncertainty. Proposed policy changes across several key areas are causing many company executives to await the outcome before embarking on major projects.

"The banks aren't lending money at the moment – everything is being held up. It's causing slowness in how people are getting finance. I think it adds a high degree of uncertainty to the IPO market," says Lau.

However, Lau and his colleague, Marcus Ohm, believe the materials sector should deliver some respite.

Ohm says the year-end losses made by a significant number of IPOs in 2018 and general market conditions suggest  there is likely to be a reduction in IPO activity between now and the middle of the year.

"The number of IPOs will be underpinned by the materials sector. We can see that in the pipeline. Most of the forecasts in things like precious metals are predicting modest price increases," Ohm says.

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“Materials stocks made up the majority of the proposed listings [at the end of 2018] with seven listings, showing market sentiment still remains positive for this sector."

Overall, 2018 was a dismal year for the IPO market. The number of new floats declined 15 per cent to 93, and the share prices of newly-listed companies dropped 18 per cent over the calendar year, on average, according to the latest HLB Mann Judd IPO Watch report.

This was markedly worse than other market indicators, with the ASX 200 down 7 per cent for the calendar year.

Smaller companies also found it hard to raise money, particularly in December, according to Ohm.

While there was a significant increase in funds raised by IPOs in 2018, which more than doubled to $8.44 billion, Ohm says the three largest IPOs – Viva Energy Group (ASX: VEA), Coronado Global Resources and L1 Long Short Fund – represented more than half of the funds raised.

The remaining 90 IPOs raised a total of $3.69 billion.

"Only 72 per cent of all new listing were able to meet their targets, which was down on both 2017 and 2016," Ohm says.

The materials sector was the strongest contributor for the year, recording 35 listings. By comparison, the second-strongest sector, software and services, saw 11 IPOs.

Newly-listed companies in 2018 also delivered underwhelming share price performance, with an average first-day share price gain of just 5 per cent. Only 47 new listings – 51 per cent of the total – ended their first day above the initial listing price.

"This is rather poor, given that the issue price of these IPOs was typically discounted," Ohm says.

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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