In May this year I wrote a blog about buoyant conditions being a major catalyst which encourages a migration of private companies to the public markets. The strong Initial Public Offering (IPO) procession in the beginning of the year has since turned into a deluge as investors hunt for growth in a low interest rate environment and vendors look for attractive valuations.
In the first half of the calendar year there were 61 new company listings on the ASX of various sizes and quality. While the cadence of new deals may appear high, incredibly, we’ve already seen 97 further IPOs in the second half with still 2 months to go. Figure 1 below pictures all new companies which have come across our desks since June.
At a headline level, IPO share price performance has been robust, averaging over 30% return to date as opposed to the S&P/ASX 200 return of 5% since June 30 (to 29 October). Headline data is however clouded by a couple of outliers which favourably skew the data. Gauging IPO share price performance using the median of 5% is arguably more representative of general market conditions given the prevalence of junior miners that are listing. For example, the top performer was Scandinavian nickel, cobalt and copper miner Kuniko Limited (KNI.ASX) which listed on 20/08/2021 and has since rallied nearly 900%! The market cap at listing was around $10m when it listed at $0.20.
While the frequency of IPOs is a dead giveaway of market confidence, I also like to track the industries and vendors for potential insights which help in assessing these opportunities. The standout industry contributing 60% of IPOs since June 30 has been the Resource sector. As certain as death and taxes is the appearance of junior miners looking to cash in on the boom. Equity is raised to fund broad drilling campaigns in new tenements as they attempt to discover the next big mineralization. Some timeless quotes you would expect to find in the prospectus include; ‘application for tenement still pending’ and ‘assets with significant potential’! At Milford, our preference is for cash generating resource companies with proven deposits, tenements secured and mining execution.
At Milford, we typically approach IPOs cautiously. The Milford Dynamic Fund has only invested in 5 IPOs out of a possible 158 candidates over calendar year 2021. Our average performance has been 58% to October, with the best performing being founder-led business Dangerous Goods Logistics (DGL.ASX).
