IPOs fall flat despite bull market

Dalrymple Bay Infrastructure has been a big disappointment since listing in December.

A deluge of new public share offers in the past year have been risky bets for investors.

With the S & P/ASX 200 share index up 35 per cent in the past 12 months and the global economy recovering rapidly amid unprecedented stimulus and vaccine developments, big name initial public share offers should have mostly rewarded investors.

But is often the case when a roaring bull market emerges after a particularly rocky period for shares, there’s a certain amount of opportunism at the expense of investors and it's a case of buyer beware.

Of the ten biggest share floats of the past 12 months, eight are now trading below their IPO price.

“This is consistent with what has happened in the past,” said MST Marquee senior analyst, Hasan Tevfik. “When there’s a flurry of IPO’s, you also get the ordinary ones coming through.”

One of the year’s highest profile listings - Latitude Financial Group – soon began to disappoint investors after its shares started trading on the ASX on Tuesday.

To be fair the share market dipped sharply this week although it has rebounded just as rapidly.

Latitude started trading a day after the S & P/ASX 200 index hit a pre-pandemic high of 7094.8 points.

But as has often been the case in recent months, investors had to be quick to lock in early profits.

MST Marquee Senior Research Analyst Hasan Tevfik. Picture: Julian Andrews.

Shares of Ahmed Fahour run Latitude – which twice before withdrew attempted share floats - fell below their IPO price of $2.60 on Thursday after peaking at $2.96 after listing on Tuesday.

No doubt the underwriters would have been at work supporting Latitude shares below the IPO price.

But that can sometimes create a false sense of security.

“Latitude has tried twice before to list on the stock exchange, it’s very capital intensive and it’s the kind of company that will do well in a booming economic environment – which we have right now – but that’s not what we’re going to have by the end of the year,” said MST’s Mr Tevfik.

“The business cycle has arguably been compressed by the events surrounding COVID.

“The Bank of Canada was the first of the central banks to come out and say they’re going to taper (reduce their bond buying) and they also brought forward their expected start of rate hikes.”

“It’s just a matter of time I think before the other central banks do the same.”

The major disappointment this week was obviously Nuix, shares of which down 16 per cent to a record low of $4.26 after it cut its revenue guidance by up to 7 per cent on Wednesday.

“The services company was the hottest float of last year in December, but only a few months later, it’s no longer the golden child of the Aussie tech sector,” said Bell Potter’s Richard Coppleson.

The high-flying data analytics group which listed in December, told investors in February that it remained “confident” of meeting its prospectus forecasts provided in the IPO – even as it reported a softer June quarter, causing its share price to fall 48 per cent over the next seven days.

“It’s much the same in the US market,” said Mr Tevfik.

“You’ve never seen as many IPOs in the US in terms of numbers as you’re seeing right now.”

“Whenever you see a flurry of IPOs, as always, you’re going to get a lot of bad ones.”

“Often it stems from a bank up of IPOs that couldn’t happen during less buoyant times.”

Of the twenty biggest IPOs in the past year, the worst three have Cleanspace Holdings and YouFoodz Holdings – both down more than 50 per cent – and Opthea – down 34 per cent.

The nation’s biggest share listing of the past 12 months, Dalrymple Bay Infrastructure has been another disappointment since listing its listing in December.

 

Dalrymple shares were down 11 per cent as the green revolution loomed as a potential hurdle.

Of course there have been some major success stories, albeit they are in the minority.

Liberty Financial Group shares were up 16 per cent since they listed in December.

Universal Store Holdings was up 87 per cent and Mass Group jumped 76 per cent.

Airtasker has been the best of the big share listings in the past 12 months.

Shares of the outsourcing-focused tech company have more than doubled in four weeks.

“It’s still too early to decide on Airtasker,” Mr Tevfik said.

“But it is a genuine new idea, it’s capital light and with the entire trend of the gig economy and everything being outsourced, maybe it is in the right area, but it’s too early to say.”