This article appeared in the February 2011 ASX Investor Update email newsletter. To subscribe to this newsletter please register with the MyASX section or visit the About MyASX page for past editions and more details.
By Tony Featherstone
Initial public offerings (IPO) activity hit a three-year high in 2010, with more than 90 floats raising more than $7 billion, the Deloitte Corporate Finance Survey showed. Only $1.6 billion was raised through IPOs in 2008 and $3 billion in 2009 as the global financial crisis dampened float activity, Deloitte said.
Another recent IPO survey, by HLB Mann Judd, found that small-cap floats in 2010 tended to outperform the market, returning average year-end premiums of 32 per cent compared to a 2.57 per cent fall in the S&P/ASX 200 index. This was largely because of some strong post-listing performances by small companies (with market capitalisation of less than $100 million) that dominated IPO volumes. Exploration companies were especially active in the IPO market last year.
HLB said in January: "As we enter 2011, the pipeline of upcoming IPOs is substantially ahead of where we were last year." Of course, much depends on the strength of the sharemarket, as IPO activity usually rises and falls depending on the overall market sentiment and investor risk appetite.
'Before and after' information
The Australian Securities Exchange website has useful information for investors wanting to research companies when they offer IPOs and after they list. The starting point is Upcoming Floats on the ASX home page. It lists all companies that have lodged their prospectus with the Australian Securities and Investments Commission and is a simple way to see all IPOs with live share offers.
Upcoming Floats shows the proposed ASX Code and proposed listing date/time for each IPO. Take care with the listing date/time information - it is an indication only. Listing dates can change quickly if an IPO closes early, or be extended if an IPO takes longer to complete. Some companies withdraw their IPOs if they cannot raise their minimum subscription. Keep an eye on the company's website and its announcements, as well as Upcoming Floats for final listing dates.
For a snapshot of each IPO, click on the links in Upcoming Floats.
This has information about the company's activities, issue price, capital sought, and expected offer closing date. Contact details for each company and a website address are especially useful. Most companies now provide an electronic version of their IPO prospectus on their website, so investors can download detailed information and an application form to buy shares.
Following IPOs after listing
New Listings on the ASX website shows all recent listings for IPOs, debt issues and other listed products, such as exchange traded funds (ETFs). First-day trading information shows how the IPO opened and closed. Investors can easily add a new listing to their ASX Watchlist, which is a convenient way to monitor up to 20 securities in a single list, via links provided.
Use ASX Company Announcements to read the prospectus of recently listed companies and other post-listing announcements. Type in the company's ASX Code and the year it listed; the prospectus is often among the earliest announcements. Check if a Supplementary or Replacement prospectus was issued, as it may contain important updated information.
Do your homework
Always remember that IPOs, by definition, have a different risk profile, simply because they have no history as a listed company. Some companies offer their shares through IPOs at a discount to the board's perceived value of the business, to compensate for the risk of buying shares in an as yet unproven listed company. This is not always the case and investors should never assume the IPO is automatically offered at a discount.
Be aware that IPOs of small exploration companies usually have a higher risk/reward profile, just like small listed exploration companies, and may not suit conservative long-term portfolio investors or those new to the market. Also, buying shares in an IPO in the hope of first-day or "stag" gains is a practice best employed by experienced traders.
The good news is that as IPO volumes increase, more established companies with a demonstrated history of earnings growth tend to list on ASX, giving more IPO choices for different investors. Always do your own research or consult an adviser before buying shares in an IPO.
And use the ASX website as your starting point for IPO information.
About the author
Tony Featherstone is consulting editor of ASX Investor Update.
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