Westfield and QR mask a poor year

THE number of businesses listing on the Australian sharemarket nearly doubled in the past financial year, with the resources sector leading the charge.

By InvestSMART · 7 Jul 2011

By InvestSMART ·
7 Jul 2011

Comments

THE number of businesses listing on the Australian sharemarket nearly doubled in the past financial year, with the resources sector leading the charge.

But the floats of the rail operator QR National and Westfield Trust eclipsed funds raised by other businesses, disguising an otherwise weak initial public offering (IPO) market.

A Deloitte Corporate Finance survey revealed the value of funds raised in IPOs jumped to $7.6 billion in the year ending June 30, from $4 billion the year before.

QR National and Westfield Trust generated $4.05 billion and $2.01 billion respectively.

The Deloitte corporate finance partner Steve Woosnam said the listing of QR National had raised hopes for the IPO market. However, the market failed overall to meet expectations.

"The equity market simply couldn't match the valuation expectations of vendors or those achieved through private sales," he said.

A total of 123 businesses were floated on the sharemarket, compared with 63 last year and down from 221 in 2007.

Western Australia accounted for 63 IPOs, NSW 26, and Victoria 13. The resources sector produced 95 floats, almost 80 per cent for the year.

Fortis Mining, which listed at 20? a share in December, was the best performing company. It raised $3.5 million to fund gold and base metals exploration in Western Australia. Its shares then gained 575 per cent after acquiring potash interests in Kazakhstan.

The Platypus Asset Management portfolio manager Prasad Patkar said investors were willing to take risks on resources stocks but other sectors remained weak.

"Commodity prices are the only source of optimism," he said.

Mr Patkar said "macro uncertainties" including European debt problems and a struggling US economy had dampened investor enthusiasm.

"I don't think the market's all that strong ... there were a lot of floats which have struggled to come on."

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

How much did IPO fundraising in Australia increase in the year ending June 30?

According to a Deloitte Corporate Finance survey, total funds raised in Australian IPOs jumped to $7.6 billion for the year ending June 30, up from $4 billion the year before.

Which IPOs raised the most money during that period?

The two largest floats were the rail operator QR National, which raised $4.05 billion, and Westfield Trust, which raised $2.01 billion — together they accounted for the bulk of IPO proceeds.

Does a large total for funds raised mean the Australian IPO market was strong overall?

No — the large totals were skewed by the QR National and Westfield Trust floats. Deloitte and market commentators said the broader IPO market was weak and failed to meet vendor valuation expectations.

How many businesses listed on the Australian sharemarket that year?

A total of 123 businesses were floated on the Australian sharemarket, up from 63 the previous year but down from 221 in 2007.

Which states and sectors led IPO activity in Australia?

Western Australia led with 63 IPOs, followed by New South Wales with 26 and Victoria with 13. The resources sector dominated — producing 95 floats, nearly 80% of all listings for the year.

Which new listing was the best performing for investors?

Fortis Mining was the best performing company after listing. It raised $3.5 million to fund exploration and its shares later surged about 575% following the acquisition of potash interests in Kazakhstan.

What factors were weighing on investor enthusiasm for IPOs?

Investors' enthusiasm was dampened by macro uncertainties such as European debt problems and a struggling US economy. Commentators also noted that outside the resources sector demand remained weak, with commodity prices the main source of optimism.

What practical takeaway should everyday investors get from the Deloitte IPO report?

The report suggests everyday investors should be aware that IPO activity can be heavily skewed by a few large listings, the overall market may struggle to meet vendor valuation expectations, and sector concentration (notably resources) and macro risks can heavily influence outcomes.