Economic uncertainty casts shadow over ASX floats

The outlook for new listings on the ASX is uncertain given economic issues and inflationary concerns, a new report warns.

The outlook for new listings on the ASX is uncertain according to a new report by accounting firm HLB Mann Judd. Picture: NewsWire / Gaye Gerard

The outlook for new listings on the ASX is uncertain given economic issues and inflationary concerns, a new report by accounting firm HLB Mann Judd warns.

“Uncertainty persists regarding the point when the market will see a sustained recovery in volumes and funds raised (from new IPOs),” Marcus Ohm, author of the report and partner at HLB Mann Judd Perth, said.

“Whist the float of Mexican-themed restaurant chain Guzman y Gomez in June was fully subscribed and enjoyed first-day and period-end gains (to June 30), there are not yet any significant volumes (of new IPOs) in the near-term pipeline.”

The ASX currently has four companies slated to list: Alcoa Corporation, Axel Ree, Bhagwan Marine and Ordell Minerals.

While Virgin Airlines has been much touted as a significant potential stockmarket listing, there has been no announcement about its future from its owners.

Pharmacy chain Chemist Warehouse is also hoping to list later this year through a reverse takeover with Sigma Healthcare if it can win regulatory approvals.

HLB Mann Judd’s mid-year IPO Watch shows that 2024 continued to be a subdued market for new IPOs, with only 13 listings in the first six months of the year – one less than the first half of 2023.

“The wider economic environment has weighed heavily upon the market, with interest rates and inflation impacting sentiment and restricting listing activity over the period,” Mr Ohm said.

He said the poor start for listings in 2024 was in line with predictions made at the beginning of the year.

He said it was good news that total capital raised by new listings over the period was $810m, a 440 per cent increase over the $150m raised in same period last year.

The figures were boosted by two major floats, including the June listing of Guzman y Gomez Limited and materials company Metals Acquisition, which listed in February.

Guzman y Gomez raised $335m from investors while Metals Acquisition, the first big listing of the year in February, raised a total of $325m.

IPO activity by quarter. Source: HLB Mann Judd

The latest figures follow a lacklustre year for IPOs on the ASX in 2023, when the total raised from ASX listings was $847m.

This was the first time since 2012 that the total raised did not exceed $1bn.

“While there were only three large-cap listings during the first half of 2024, this included two companies with a market capitalisation exceeding $1bn at listing, which contributed $660m in total funds raised,” Mr Olm said.

Mr Ohm said weak commodity prices were also holding down the number of new mining companies coming to the market, with the lithium investment boom of a few years ago now over as uncertainty over future demand for electric vehicles ­persists.

Mr Ohm said the outlook for new IPOs would continue to be affected by sentiment about the outlook for the economy.

But he said the two large IPOs of the period were fully or oversubscribed, “highlighting that there is investor appetite for the right listing on the ASX”.

“Both Metals Acquisition and Guzman y Gomez were popular with investors, and both performed well on their first day,” he said. “More generally, the share price performance of new listings during the period was an improvement on the previous year.”

The average first day gain across all new listings was 32 per cent for the first six months of 2024, compared to the average first day gain of just 6 per cent for the whole of 2023.

By the end of June 2024, the average increase over the listing price was 13 per cent, compared to an average year-end loss in 2023 of 10 per cent.

“New IPOs performed well relative to the wider sharemarket, with the ASX All Ordinaries closing just above 8013 at the end of the period, representing a 2 per cent increase for the period. IPOs performed much better, indicating a positive investor appetite for new listings,” Mr Ohm said.

As of June 30, 2024, the four upcoming listings registered with the ASX were seeking $111m in initial capital.

This excludes Alcoa Corporation, which is not raising any capital as part of its listing for the issue of CHESS Depositary Interests (CDIs), representing a share in Alcoa stock in the US.

During the first half of 2024, six industry sectors contributed new listings during the period, up from three sectors in the first half of 2023.

Materials listings dominated, comprising seven of the 13 listings in the period.

The largest listing was in the consumer services sector with Guzman y Gomez, followed by the materials company Metals Acquisition.

All six sectors recorded a first day gain on average.