Investability’s Managing Director Dannika Warburton was interviewed in early March 2023 about the state of play for IPO’s on the Australian Securities Exchange. Below is an excerpt of her thoughts on what investors can expect for the remainder of 2023.
1. How are you finding the Australian IPO market this year compared to 2021 and 2022?
It’s been a tepid Australian IPO market since the heady heights of the 2021/early 2022 bull run. Only $1.05 billion in IPO capital was raised in Australia last year (83 IPOs), down from $12.85 billion in 2021 (189 IPOs). So far in 2023, there’s been just 7 ASX IPOs raising a total of $0.06 billion (as at 1 March 2023) – and just one of those companies is trading above the listing price. The IPO market has been tough for junior companies and effectively shut for listings of size.
In terms of what we are seeing “at the coalface”, the larger mining companies are delaying their ASX IPOs and choosing to stay private for longer. Meaning they raise pre-IPO funding but extend the usual 6 month pre-IPO-to-listing window, choosing instead to work up their assets. There’s some activity in the junior resources space, but it seems most are waiting for momentum to return to the IPO market.
Investability assisted with 16 resources IPOs in 2021 and the early part of 2022; this year we’ve assisted with one IPO and have two coming up in later in the year, which is telling of current market conditions. One positive is that with less companies listing, IPO hopefuls have less competition in the Australian market.
2. Why are there less companies listing their IPO on the ASX right now?
The macro environment including coordinated central bank interest rate rises (aimed at cooling the economy to target inflation) has flowed through to investor expectations and risk appetite. Recent unsuccessful listings have weighed on investor sentiment (of the 7 Australian IPOs this year just one is trading above its listing price). Management teams are thus reconsidering the timing of proposed floats within this backdrop resulting in fewer listings on the ASX.
It’s not necessarily a bad thing, as only the best quality projects and companies will come to market. As mentioned, some companies are choosing to stay private for longer, instead of listing their IPOs early on the ASX. The wisdom being that if you come to market with more advanced projects and a more meaningful investment proposition, as a company you are presenting a better-quality opportunity for investors.
3. Do you think the number of ASX IPOs will pick up?
The market is cyclical so the number of successful IPOs will pick up. When that will happen is the question. March is usually the time when market debutants typically start roadshowing; this year we aren’t seeing that. One potential scenario is that a lack of deal flow will foster a level of pent up demand and we will see things pick up in the second half of the year, provided macro tailwinds ease.
In the IPO cycle, we’d expect to see the better companies (those with strong management teams and advanced projects) get up first. Continued success in secondary funding rounds will be predicated on communicating corporate success with the investment community.
By its nature, the ASX IPO market is fairly optimistic. We are hopeful that our upcoming listings will perform well, and this in turn will see sentiment return to the Australian IPO market. We see decarbonisation-focussed minerals companies outperforming other sectors in this space.