Despite a strong start to the year, companies listed on the ASX for the first time have been hurt by the broader equity market downturn, raising concerns among investors.
Initial public offerings (IPOs) face an increasingly challenging environment, reflecting the macro backdrop, with factors such as inflation fears, geopolitical instability and rising interest rates affecting markets around the world .
In the first six months of 2022, there were only 59 new IPOs in Australia, compared to 61 in the same period of 2021. The second half of 2021 saw 130 new listings.
Additionally, there has been a significant decline in amounts raised via IPO so far in 2022. Total amounts raised have been particularly impacted by the lack of large-cap listings (those with a market capitalization greater than $100 million) with just five large-cap new entrants in this segment of the market so far this year, compared to 46 new listings in 2022.
While we typically see more listings in the second half than the first half, at this point it seems unlikely that the 2022 IPO market will approach the amounts raised, or number of listings, that we saw last year.
The challenging environment is expected to continue into the second half of 2022, including the IPO pipeline – i.e. the number of companies that have recorded an ASX listing date of June 30, 2022 – is down considerably over the same period last year. Additionally, the amount they are looking to raise is only $121 million, down from $1.25 billion at the end of June 2021.
Another trend likely to continue in the second half is the dominance of the materials sector.
In the first half, it accounted for a total of 44 new entrants out of 59. Gold projects prevailed, with 21 of the material listings holding gold projects. In addition, several listings were for projects focused on lithium, nickel and cobalt prospects, reflecting the growing global demand for battery metals.
At the end of June, the resources sector once again dominates the pipeline, with 12 materials companies and one energy company set to list, accounting for 87% of new entrants offered to the market.
The average amount sought through an IPO by these companies is just $6.8 million, reflecting the typical small-cap makeup of new entrants to the resource sector. Battery metals, including copper and nickel, remain popular commodities, with eight of the materials companies holding projects for these metals. A total of four upcoming listings hold gold projects and two proposed listings hold lithium projects.
However, even if the environment remains difficult for new companies, all is not bleak for investors. Overall, new market entrants outperformed the broader market, albeit slightly. The average loss for new market entrants at the end of the period was 10%, compared to the ASX All Ordinaries Index’s 13% drop from 7,779 at the start of the year to 6,747 at the end of the year. the period.
The average first-day gain for new market entrants was relatively healthy and similar to that seen during the more stable days of 2021. However, these companies struggled to sustain these gains and at the end of the six-month period month, only 32% of IPOs made an overall gain.
Overall, the IPO market looks uncertain, reflecting general market weakness. As always, any decline in the equity market will inevitably affect both the number and size of IPOs for the remainder of 2022 and potentially into 2023. Investors would be wise to keep a cautious eye on the market – if there are opportunities, there are also risks, especially with new businesses.
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