Investors spoilt for choice as tide turns
A flurry of listings are set to hit the market, but it won't all be smooth sailing, writes Georgia Wilkins.
Companies on the hunt for capital are flocking to the stock exchange for their first public listing amid record gains in equities and low interest rates.
But as firms, including tech start-up Freelancer.com, rush to float before Christmas, fund managers are expressing caution about the outlook for growth amid ongoing uncertainty in the global economy.
Bankers from UBS and Perpetual say they have not seen as much demand for initial public offerings (IPOs) since before the global financial crisis. "It's an absolute frenzy," Matt Williams, head of equities at Perpetual Investments, says.
"Better market conditions have opened the way for an absolute plethora of floats that we're waiting on. We've also seen a few more opportunistic capital raisings and sell-downs."
So far this year more than 60 new entities have listed on the ASX, including 24 since June 30.
Another dozen are expected before Christmas, including the New Zealand government's largest sell-off, Meridian Energy, the private equity-backed electronics group Dick Smith and Nine Entertainment.
Wilson Asset Management chairman Geoff Wilson says the surge in activity is a stark contrast to the past few years of subdued IPO growth. "The equity market has risen more than 30 per cent in the last 15 months," he says.
"We've come out of a period, since the global financial crisis, where it has been very hard to raise equity at good prices. Companies have been waiting for a window to open, and now it's wide open."
But while conditions have improved, Industry Funds Management chairman Garry Weaven says the US political crisis will weigh on any future growth prospects for new stocks.
"It mustn't be easy for those investors to make the decision to list on the stockmarket right now," he says. "I think they are feeling that they have got no other option."
This week, cruise ship operator SeaLink joined those fresh on the ASX block, closing 36 per cent higher than its issue price of $1.10 on the first day of trade. Its market capitalisation jumped $28 million.
It follows the less successful float of insurance comparison website iSelect, whose June listing prompted a probe by the corporate regulator into misleading earnings forecasts and was followed by the resignation of its chief executive, Matt McCann.
Williams at Perpetual, one of the funds behind the iSelect float, admits managers and investors needed to be prudent when looking at new listings. "We don't get them all right," he says. "Although we've seen some successes, investors need to be aware that it is not a given path to making money."
He says Perpetual is looking closely at Nine Entertainment, which is preparing for a $2.5 billion float in December. Nine investors are scheduled to meet on Monday to confirm details of the float, including how much to raise and how it plans to pay down its $900 million debt.
"Certainly, its ownership structure has been turbulent, but it remains a pretty good business," Williams says. "Like most of these things, it will come down to the price and the state of the balance sheet."
The number of new listings on the ASX has risen steadily in the years since the financial crisis, despite an increase in 2011 of predominantly small-cap companies.
Tech firms have been in the IPO spotlight, with foreign exchange trading site OzForex the latest to make its ASX debut this month.
The company opened 30 per cent higher than its $2 float price, netting founder Matthew Gilmour and early investor Gary Lord $60 million each.
Freelancer.com is set to list on November 15 (see story below).
"It has become quite clear over the last couple months that there's a very strong underlying demand for new equity, and it takes the investment banks and the brokers and the private equity sellers a period of time to satisfy that demand with new capital," Wilson says.
"If you were going to float a company, you'd want to float it between now and Christmas."
Weaven says companies looking to float are assuming there are few other ways to raise capital.
"With interest rates coming down, people are seeing that they can't sit on cash forever and expect to get strong returns," he says.
"The recent activity and buoyancy is their first indication that there's a chance. As a consequence, people are making a choice. They're saying there's no other option."
UBS managing director Simon Cox says investors are becoming desensitised to some of the uncertainties on markets and are looking to buy anything that can generate decent growth. "They are having to navigate speed humps, but it's not the giant potholes they were dodging in 2008 and 2009."
But he says, despite the pent-up demand, the market is not going to accept every new entrant at face value. "This is not the rising tide that lifts all ships. The market will be discriminating. It clearly wants to see best names through."