IPO market warms up

By: Shuo Yang

Investment Analyst at Microequities 

The All Ordinaries has returned approximately 24% including dividends in the last 12 months. The strong performance has encouraged more privately owned companies to consider listing on the market. Whether they are government privatisations, private equity exits or privately owned firms, institutional fund managers have shown a surprisingly keen appetite for IPOs in recent times, with many oversubscribed. The stronger market conditions have also seen higher quality companies come to the market such as those in professional services, health care and utilities, with the mining exploration companies continuing to struggle in the IPO and secondary markets.

Some of these IPOs in the first half of 2013 have included Mighty River Power (ASX: MYT), a New Zealand government owned energy company. It raised over $1.7bn and attracted strong demand from investors seeking exposure to a stable utilities play.

A more recent listings was Virtus Health (ASX: VRT), Australia’s provider of IVF services. Once again shares were well oversubscribed, despite the complete sell-down by its majority owner, Quadrant Private Equity. Investors set aside concerns in recent years of poor performance from private equity owned business, such as Myer. Instead the focus was on the defensive nature of the business model, dominant market share and high free cash flow conversion which saw the company’s shares racing from $5.68 to over $7 since listing.

One float that was much hyped but ultimately flopped, was iSelect (ASX: ISU). The online health insurance comparison website was touted as comparable to other listed internet based businesses such as Seek, Carsales.com, REA Group, Wotif and Webjet. However, questions over its revenue recognition methods, relationship with health funds and high earnings multiple, saw the shares trade at a discount upon listing.

At the microcap end of town, Queensland based personal injury law firm Shine Lawyers (ASX: SHJ) attracted strong interest amongst fund managers as it was in a relatively defensive industry, with a clear growth roadmap and attractively priced compared to its larger listed peer, Slater and Gordon (ASX: SGH). More recently, virtual telecommunications network operator, Inabox Group (ASX: IAB) also completed a successful listing, the IPO was strongly aided by M2 Telecommunications (ASX: MTU) becoming a 12% cornerstone investor.

Overall, it is safe to say that improved market conditions will bring out a wider selection and arguably better quality companies seeking to list. Insurance broker Steadfast is scheduled to list in early August and there is a long list of industrial companies waiting in the wings to have their day in the sun.