ROWAN CLARKE, Investor Relations
The IPO market in Australia was buoyant from late 2020 through 2021, following a period of subdued activity through 2019 and the first six months of Covid. This blog looks at how the IPO market is backing up in 2022 following a performance that broke all records in 2021.
Despite initial expectations in June 2021 that IPO activity would slow in the second half, there was a record 127 IPOs, raising a total of $8.97 billion. This compares with the previous record in 2015 of 75 IPOs in the second half of that year. The largest IPOs in 2H21 were GQG Partners Inc. (ASX:GQG) and PEXA Group (ASX:PXA) that raised $1.19 billion and $1.17 billion, respectively.
The IPO market in 1Q22
In the first quarter of 2022 there has been 24 IPOs, which is the same as the first quarter in 2021 but with a very different economic outlook in play. By contrast, a recent EY report identified a 37% fall in the number of IPOs globally compared to the first quarter last year with the value of deals dropping 51%. In the US, the first quarter of 2022 was the slowest in six years with the amount raised down 95% on 1Q21.
While the number of IPOs in 1Q22 has tracked close to 1Q21, this year they have tended to be much smaller raisings. In 1Q22, a total of $182 million in funds was raised compared to $764 million (-76%) for the same period last year. The largest IPOs in the first three months of this year were Beforepay Group (ASX:B4P) that raised $35 million and US Student Housing REIT (ASX:USQ) that raised $15.51 million. In 1Q21, the largest IPOs were DDH1 (ASX:DDH) and Airtasker (ASX:ART) that raised $150 million and $83.65 million, respectively.
If we look at how the IPOs in 1Q22 have performed, measured on the immediate 1-day and 5-day return relative to the IPO price, they achieved returns of 23.77% (1-day) and 22.85% (5-day). This is well below returns in 1Q21 of 33.34% and 41.12%, respectively. So it would appear that IPOs in 2022 have either been better priced than in 2021, or the market has become much more discerning.
| 1-Day Return | 1-Day Return | 5-Day Return | 5-Day Return | |
|---|---|---|---|---|
| 1Q22 | 1Q21 | 1Q22 | 1Q21 | |
| Low | -46.00% | -28.89% | -44.00% | -41.11% |
| Average | 23.77% | 33.34 | 22.85% | 41.12% |
| Median | 5.00% | 21.25% | 10.00% | 12.50% |
| High | 165.00% | 172.50% | 197.50% | 280.00% |
Outperformers and underperformers of 1Q22
The top performing IPOs in 1Q22 include resources explorers and a pharmaceutical company. NICO Resources (ASX:NC1) was the best performer as at 22 April following its listing in mid-January. It is developing an Australian Nickel mine and rose sharply following an investor presentation during April, resulting in a return of 762.5% to date. Firebrick Pharma (ASX:FRE) is focused on commercialising a nasal spray that kills germs responsible for respiratory infections like the common cold and has returned 130% since listing at the end of January.
| ASX Code | Company | % Return | Date Listed | Market Cap | Business |
|---|---|---|---|---|---|
| NC1 | NICO Resources Limited | 762.5% | 19/01/22 | $150.15m | Other Metals/Minerals |
| BRX | Belararox Ltd. | 322.5% | 28/01/22 | $40.72m | Other Metals/Minerals |
| MPG | Many Peaks Gold Ltd. | 157.5% | 16/03/22 | $20.49m | Precious Metals |
| FRE | Firebrick Pharma Limited | 130.0% | 28/01/22 | $80.20m | Pharmaceuticals: Major |
| KLI | Killi Resources Limited | 70.0% | 10/02/22 | $17.68m | Precious Metals |
The worst performing IPOs in 1Q22 include a mineral exploration technology company, a customer reward provider, and an aged-care technology company. Beforepay Group (ASX:B4P) has been the most disappointing, trading poorly on the first day of listing with the share price falling 44.1% from its IPO price of $3.41 per share. The pay-on-demand provider continued to lose value and was 85.3% lower at 50 cents per share by 22nd of April.
| ASX Code | Company | % Return | Date Listed | Market Cap | Business |
|---|---|---|---|---|---|
| B4P | Before Group Limited | -85.3% | 17/01/22 | $23.22m | Packaged Software |
| OXT | Orexplore Technologies Ltd. | -63.2% | 21/01/22 | $9.43m | Electronic Equipment/Instruments |
| MRI | My Rewards International Limited | -51.5% | 11/02/22 | $18.63m | Miscellaneous Commercial Services |
| CTQ | Careteq Ltd. | -35.0% | 10/01/22 | $15.44m | Miscellaneous Commercial Services |
| VTX | Vertex Minerals Ltd. | -25.0% | 17/01/22 | $6.81m | Other Metals/Minerals |
It remains to be seen how the IPO market will perform during the remainder of 2022 however there is clearly reluctance to test the market with a number of prospective IPOs being pulled or postponed during March, citing uncertain market conditions. These include brokerage platform Openmarkets, music company Songtradr, and New Zealand-based car dealer Armstrong’s. Despite this, 14 companies listed in April with another 14 scheduled to list before the end of June. This would bring the number of total IPOs for 1H22 to 52, the third strongest first half performance in ten years after 2021 and the previous peak year in 2017. However, based on upcoming IPOs in May and June, we estimate that funds raised of $658 million during the half will be down 77% on the $2.85 billion raised in 1H21.
Automic continues to dominate the share registry market
Apart from the selection of broker, the second big decision at IPO is choice of registry. Given the dominant position held by Computershare and LINK Market Services in the Australian registry market for the last two decades, the emergence of Automic since 2016 as a challenger to the status quo has accelerated over the past 2 years. In 2021, Automic won 46% of all IPOs, being selected as the registry provider in 88 of the 190 IPOs. In 1Q22 it has picked up registry work for 14 IPOs or 58% of the total. While their gain has been at the expense of all four registries operating in this market, it has clearly had the greatest impact on LINK.
