Death, taxes …. & IPOs in hot markets - Milford Asset

Death, taxes …. & IPOs in hot markets

Michael Higgins

Portfolio Manager

Michael joined Milford in January 2017 and is Portfolio Manager of the Milford Dynamic Funds. Previously he spent four years at Macquarie Securities as a Senior Analyst in the Emerging Leaders Research team. Prior to that, Michael was an Analyst at the Global Research House Morningstar. Over the past seven years, his coverage has been varied across a broad range of smaller technology and industrial companies. Michael also worked as a Structural Engineer at Sinclair Knight Merz in Sydney before switching into the funds management industry. He holds a Masters of Commerce and a Bachelor of Engineering (Honours), both from the University of Sydney.

As getting a bus seat becomes more competitive, the trains more compact and sporting crowds less sparse, Australia is slowly emerging from hibernation. While some may say nothing in life is certain except for death and taxes … I’d argue Initial Public Offerings (IPO) in hot markets should also be included. Buoyant markets are typically a major catalyst that encourages a migration of private companies to the public markets. However, on this occasion, the IPO window looks to have reopened at an earlier stage than in previous recoveries as investors hunt for growth in a low-interest rate environment and vendors look for attractive valuations.

At Milford, we approach IPOs cautiously. The high level of information asymmetry between current owners and potential investors, and the motivation to paint a positive picture, is always worth keeping in mind. In the past two years, there have been 36 new listings on the ASX with valuations over $100m. Milford’s Dynamic Fund has participated in eight for an average return of 186%.

The current pipeline for listings is full to bursting. The Australian Financial Review (AFR) reported last week that $10bn of floats are actively being prepared for an ASX listing in the coming three months.

Three companies which have caught our eye in the initial procession of management meetings have been CleanSpace, NUIX and Adore Beauty.


Cleanspace designs and manufactures innovation respiratory protection equipment for healthcare and industrial employers globally. The primary product is the CleanSpace Halo, which replaces both disposable N95 masks and bulky protective equipment within hospitals. The ingenuity of the powered respirator is that it is lightweight and portable with no hoses or belt-mounted batteries. We’ve reached out to surgeons who have spoken about its comfort and ease of use compared with the available alternatives. Importantly, it is in the right place at the right time and is highly effective at protecting against COVID transmission.


NUIX is a global forensics software platform that helps to detect and prevent fraud and online criminal activity. The smarts are its ability to repackage complex and messy data to a structured normalised format that can be easily analysed and assessed. NUIX currently generates over $175m of annual revenue across blue chip customers including the US Federal Reserve, Amazon, and the Australian Police. In early 2010, the US Securities Exchange Commission announced that NUIX had won a long term contract to provide the agency with corporate software to assist in the detection of fraud and white collar crime.

Adore Beauty

From humble beginnings (Kate Morris’s garage), Adore Beauty has grown to be Australia’s #1 online beauty store. Customer numbers have grown exponentially in a COVID world as prestige department stores and niche brands struggle to migrate to a full online offering. While some of the uptick in demand is clearly a short-term effect of lockdown and competitor store closures, customer retention has historically been solid. We think key near term opportunities include the potential launch of in-house labels. Adore looks to be the ultimate overnight success story, but has been 20 years of hard work in the making.

As with all new potential investments, our team will meet management and develop an investment thesis. This process assesses quality of management, competitive strengths and weaknesses in the industry/business model and valuation (on most occasions over-valuation!). Like every investment in our portfolio, we also evaluate Environmental, Governance and Social factors (ESG) to ensure they align with our framework. Here’s to a busy few months ahead!

Disclaimer: This blog has been prepared by Milford Australia Pty Ltd ABN 65 169 262 971 (AFSL 461253). You should not rely on any information in the blog in making any investment decision. It is for general information only and does not take into account your objectives, financial situation or needs. You should consider, with a financial adviser, whether the information is suitable for your circumstances. Past performance is not a guarantee of future performance.

Disclosure of interest: Milford holds shares in PointsBet, Sezzle, Opticomm on behalf of clients.