New listings enjoy that floating feeling with 47% increase

For most companies that braved market conditions to list for the first time, the risk has been worth the reward.

Picture: Christian Gilles

The sharemarket has had a volatile year, experiencing both record-breaking months for growth and daily slides – but for most companies that braved market conditions to list for the first time, the risk has been worth the reward.

Of the 42 initial public offerings conducted since the start of 2020, nearly 75 per cent have recorded positive returns as of Friday, with a mixture of tech companies, healthcare companies and more traditional business featuring among the top performers. The average return across all listings so far this year is 47.3 per cent.

The best performing company is IT solutions company COSOL which has seen its share price rocket 277.5 per cent to 77.5c per share after a $12m listing in January. Shares were sold in the float at 20c each.

Following that is respiratory imaging company 4DMedical, with its share price lifting 242 per cent to $2.52 after a $55m August listing at 73c per share.

This week, Booktopia achieved its goal of successfully listing after shelving its $40m offer in 2016. It was worth the wait, Boooktopia’s $43m listing on Thursday hit the boards at a 20 per cent premium to the initial offer price of $2.30 per share.

Meanwhile Nuix’s $1.8bn float on Friday – the biggest float of the year debuted to an astonishing 60 per cent premium on the $5.31 offer price.

Construction company Maas Group had also had a strong start after listing on Friday, with its $145m, $2 per share offering lifting 31 per cent by the afternoon while clothes retailer Universal Store has seen a 26 per cent increase in its share price to $4.86 since its $147m listing just over two weeks ago.

However, some heavily anticipated IPOs did not live up the hype.

Online-only cosmetics retailer Adore Beauty has seen its share price slip 10 per cent to $5.96 since its $269.5m listing in October while online lender Plenti’s share price has fallen 33 per cent to $1.10 since its $55m debut in September.

Home fragrance retailer Dusk Group has slipped 15 per cent since its $70m listing at $2 per share, despite representing 22 per cent of the home fragrance market, which has boomed during COVID-19 as people working from home buy scented candles and reed diffusers.

Wilson Asset Management lead portfolio manager Oscar Oberg said a shift away from tech companies and business that outperformed during the national lockdown is underway due to positive developments towards a COVID-19 vaccine.

“A month ago – before the vaccine – everyone wanted to be in e-commerce and tech because there was a lot of uncertainty,” Mr Oberg said.

“We didn’t expect the efficacy of the vaccine to be as good as it was, and that’s flipped everything on its head, so I think the market’s changed and that has impacted a number of IPOs.”

Mr Oberg said the performance of Universal Store demonstrates the structural shift in the market.

“We participated and it probably went better than I thought it would prior to the vaccine,” he said.

“It shows how the market has changed and rewarded companies like this.”

The return to normalcy is only widening the IPO pipeline, with non-bank lender Liberty Financial gearing up for a $1.8bn float before Christmas.

But despite the bullishness, valuation will remain as important as it was last year when the $3.2bn listing of Latitude collapsed despite downwards revisions to the share price.

Regal Funds Management chief investment officer Philip King said a number of IPOs are currently overpriced.

“It’s very competitive on the sales side, and with many brokers trying to win IPOs, they sell a lot,” he said.

“I think it’s prices and valuations that are probably a little bit high, and maybe at times they talk about businesses that probably shouldn’t be listed.

Mr King said that going into the next year IPO participants had to push for more realistic valuations.

“It’s very important to be selective going into 2021,” he said.

“And we need to push back on the valuations and get them priced right. so we do have that good aftermarket that actually gets a company off on the right foot.”

Mr Oberg said next year it is likely that many underperforming companies will turn around, while others will be the target of acquisitions.

“Maas Group is another company that listed on Friday that we like as it is exposed to regional Australia which has a very strong infrastructure pipeline,” he said.

“We’re quite positive on the IPOs pipeline going forward and believe a number of the underperformers like Dusk will do well once people get time to do the work.

“We think it will be above IPO price very soon as our feedback suggests that the category in candles and diffusers are doing very well.”

“I think with a low interest rate environment, the market is looking at companies that can make acquisitions so I think that could be a theme going into next year for sure.”