You can tell a lot about the market by how much companies are able to raise, and the nature of those raises – here are five insights from 2018.

1. The market was cooler than last year 

 

In 2018, ASX listed companies raised $20.27 billion in new capital through IPOs, Placements and Rights Issues.

2018
Market Cap Total Raised ($m) % of Total Total Deals Avg. Deal Size ($m)
>$1,000m $9,429.00 46.52% 28 $337.00
$200m – $1,000m $5,087.00 25.10% 64 $79.00
$50m – $200m $2,229.00 11.00% 156 $68.60
< $50m $3,524.00 17.39% 495 $7.12
Total $20,269.00 100.00% 297 $27.00

 

This was lower than the $22.53 billion raised in 2017 and $25.3 billion raised in 2016.

Market Cap Total Raised ($m) % of Total Total Deals Avg. Deal Size ($m)
>$1,000m $3,877.66 17.53% 28 $337.00
$200m – $1,000m $4,653.03 21.04% 64 $79.00
$50m – $200m $2,423.88 10.96% 156 $68.60
< $50m $11,160.86 50.47% 495 $7.12
Total $22,115.43 100.00% 297 $27.00

 

2. Small caps have been given the cold shoulder

 

Investors only poured $3.5 billion into small caps in 2018, a sharp decline from the $11.2 billion invested in 2017.

In a year with two extended sell-off periods (from February to March then another spanning almost the entire fourth quarter), investors have turned to companies with less risk. In particular, companies that are already profitable and have a large customer base.  

Among some of the larger deals were Reece raising $600 million through a Placement and Rights Issue and Bega Cheese raising $200 million in a placement, both recognisable household names in Australia. The year’s largest deal (and IPO) was fuel refiner Viva Energy’s $2.6 billion IPO in July.

3. Investors are not embracing tech; sticking with mining and finance

 

The mining boom that prevented a recession in Australia is long gone.

Politicians told us our economy had to transition. And despite the moves by state governments, innovation hubs and multinational tech giants to create ‘tech hubs’ in Australia’s capital cities, far fewer investors have embraced the tech sector with only $850 million being raised across less than 100 deals.

It is easy to put this down to an increasing hostility towards technology companies in 2018.

Yet it is equally arguable investors are still addicted to the traditionally strong mining & finance sectors with nearly two thirds of capital raised going to either of the two sectors. Perhaps it’s just because there is too much choice with the ASX containing double the number of mining companies than the NYSE and NASDAQ combined.

Yet investors put nearly 45 percent of new capital raised for ASX companies ($8.98 billion out of $20.2 billion) to energy and minerals companies in over 400 deals. Another 21 percent ($4.26 billion) went to financial companies in spite of the increased scrutiny on the sector during the Royal Commission.

Total ($m) Average (m) Number %
Agriculture 42 32 3 0.2
Communications 204.5 58.5 10 1.0
Consumer 3,322 255 108 16.5
E&M 8,993 916 407 44.6
Financial 4,260 365 54 21.1
Industrial 2,378 526 43 11.8
M&P 101 25 8 0.5
Tech 850 155 89 4.2
Total 20,149.42 28 722

 

4. Placements remain most popular for companies

 

Nearly two thirds of deals (493 out of 743) were placements, and this boils down to two key factors:

Firstly, placements have reduced disclosure requirements as they’re usually to institutional and high net worth investors. 

The underlying logic is that compared to retail investors, they will usually be more experienced in making decisions and even if they make a wrong decision they will suffer less financial harm having more assets than retail investors.

Secondly, placements can be conducted without telling the market until it is completed.

If there is a shortfall in an IPO or a rights issue, investors may be concerned about the ability of the company to continue to operate and dump the stock. Even though placements usually would not occur if the company did not need money, knowing it is complete gives shareholders a sense of security to maintain their confidence in the Company and hold their shares.

5. IPOs did not perform in 2018

 

In early January 2019, only 23 IPOs out of 95 were above their listing price and only four had doubled in price since their listing, and three of these were in consumer goods.

Yet, the outstanding performance of January’s sole listing, Splitit Payments (ASX: SPT), would show there may be more exponential performers this year.

 

Company Code Industry Offer Price 9-January Price Return 13-Feb price Return
Netwealth Group NWL Financial $3.70 $7.71 100.8% $6.61 78.4%
Keytone Dairy Corp KTD Consumer $0.20 $0.44 102.5% $0.41 105%
Exopharm EX1 Consumer $0.20 $0.45 122.5% $0.55 125%
Elixinol Global EXL Consumer $1 $2.82 180% $3.08 208%
Splitit Payments  SPT   Technology  $0.20   $1   400%   0.80  400%

 

Nearly half (44 percent) of 2018’s underperforming listings listed in the last four months of the year during which the ASX declined by 14 percent. This indicates that investors may have been more scared of the broader market rather than from their individual investments in these companies.

On the other hand, more than half of the outperforming stocks (57 percent) also listed during the September-December period. This shows, it is still possible to pick a winner even when markets aren’t in favour. 

 

This content does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.