Record low IPO activity

JUST eight companies floated on the public equity market in Australia in the first half of 2009, raising $90.86 million between them, according to the latest IPO Watch update from HLB Mann Judd Corporate Finance.

This outcome represents an 84 per cent drop in the number of floats over the corresponding period in 2008 and 92 per cent for 2007.

Director of HLB Mann Judd Corporate Finance Geoff Webster, says the new 2009 issues to date have been small cap (under $100 million) companies.

“Although the number of companies raising funds through the public equity markets is the lowest by a massive margin since the IPO Watch started in 2005,” says Webster.

“The average amount raised by small cap companies so far this year exceeds both 2008 levels and more importantly, the pre-economic crisis average from 2007.”

Webster noted that the average amount of funds raised by small caps over the first half of 2009 was $11.36 million. This compares to $7.45 million in 2008 and $8.75 million in 2007, before the global economic crisis hit.

“We see the result as partly symptomatic of the extremely low number of new companies coming to market so far this year; it could also indicate that investor confidence is on the rise,” says Webster.

The IPO Watch update found that only one company came to issue during the second quarter of 2009, compared to 18 in 2008 and 71 in 2007.

“Yet, whilst the market practically stopped in terms of activity over the second quarter of 2009, the performance of new issues noticeably improved over the same time,” he says.

The June quarter saw prices gain an overall 5 per cent (while the June quarter price performance was positive, the performance from issue to 30 March was negative (-6 per cent). Overall, from issue to June 30, the price of newly-issued companies dropped only 1 per cent, thanks to the performance improvement seen in the June quarter.

The overall modest price loss to June 2009 is a stark contrast to the negative growth of 2008 where prices fell by 63 per cent from issue to year-end.

“We see it as significant that the average market capitalisation of small cap companies floating over the first half of 2009 was also comparatively stronger at $43.9 million,” says Webster.

“This represents an 80 per cent increase on 2008 and a 107 per cent increase on 2007.”

Webster says the increased market cap result provided further evidence that only the stronger companies would pursue an IPO in the current market.