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IPOs underperform in 2018

A mid-tier accounting firm’s annual anaylsis of initial public offerings (IPO) has shown this type of investment opportunity underperformed the market in 2018 and as a result the pipeline for this activity in the new year is soft.

The latest “HLB Mann Judd IPO Watch Report” revealed new IPOs for 2018 had experienced a share price dip of 18 per cent on average by the end of the calendar year. This underperformed the ASX 200 Index, which only saw a 7 per cent fall in stock prices over the same time frame.

“Share price performance has been the interesting feature of the market this year because it was really quite underwhelming towards the end of the year. IPOs have suffered in line with the general market,” HLB Mann Judd Perth partner Marcus Ohm said.

“Only half of new listings last year ended their first day above water, which is unusual because normally you get that discount factor in IPO pricing.

“I think that’s the only year in recent history when IPOs underperformed the larger market.”

According to Ohm, the poor returns in 2018 have resulted in a softening of the number of IPOs that will take place in 2019.

“At the end of December we had only 17 companies in the pipeline [versus] 37 at the same time in the previous year, so that’s definitely softer,” he said.

Despite the underperformance of IPOs last year, the report showed they raised a total of $8.44 billion in funds, representing a 106 per cent increase from the total of $4.09 billion raised in 2017.

In addition, the study discovered there were only 93 IPOs in 2018, down from the 110 new market entrants in 2017. The accounting firm pointed out this was still consistent with the five-year average.

As in previous years, the report showed small-cap companies with capitalisation under $100 million dominated the total number of IPOs during 2018.

“There were 72 small-cap IPOs undertaken during the year, down on the 88 of the previous year, but nevertheless representing 77 per cent of the total IPO market,” Ohm said.

On top of the poor share price performance of the IPOs in 2018, capital raised was also disappointing, the analysis uncovered.

“Only 72 per cent of all new listings were able to meet their target, which was down on both the 2017 and 2016 years, which saw 79 per cent and 83 per cent of targets met respectively,” Ohm said.

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