Australia’s IPOs delivered a return of nearly 12% in 2016, outperforming the benchmark ASX200 index which closed 7% higher for the year.
The performance was better than the 7.9% of the previous year but well below the 24.1% of 2014.
New ASX listings last year tended to be smaller market caps, with only 38 out of 94 listings for the year larger than $75 million and representing 89% of the combined total market cap.
According to the 2017 Deloitte IPO report, “A game of snakes and ladders”, the 94 IPO listings in 2016 had a total market capitalisation of $14.5 billion with $7.9 billion of capital raised.
The Deloitte report has a warning for listing companies on their financial forecasts.
Those not getting it right risk are being punished by investors. Deloitte says it’s seen the share price of a number of companies fall because they failed to deliver sustained financial performance.
“Although not disclosed in the prospectus, companies considering listing must clearly understand that the market implicitly assumes sustained financial performance from listing date onwards,” says Deloitte.
“We believe it is crucial for companies to stay on message, delivering on growth objectives, earnings stability and dividend payout ratios.”
In 2016, the two largest listings were service stations operator Viva Energy Real Estate Investment Trust with a market capitalisation at listing of $1.5 billion and plumbing supplies company Reliance Worldwide Corporation which listed for $1.3 billion.
Viva’s share price gained 9.1% and Reliance 28% on listing.
And there is increasing optimism in the pipeline for IPOs, according Ian Turner at Deloitte’s corporate finance.
“Looking forward to the rest of 2017, Deloitte expects the Australian IPO market to remain active, although deals are likely once again, to be weighted towards the smaller end of the market,” says Turner.
“Our conversations across the market highlight that investors are increasingly discerning and are expecting to see a demonstrated track record and growth profile beyond just the prospectus forecast period.”
And Deloitte expects a number of mature companies that delayed listing in 2016 to go public as market conditions improve.
In the first few months of 2017, large listed companies including Origin Energy, Wesfarmers and Fairfax Media are considering spinning-off successful business units into separate publicly listed vehicles.
The Deloitte report shows that IPOs listed in 2014, 2015 and 2016 significantly outperformed the wider market.
Here’s how each IPO performed in 2016: