Total funds raised in initial public offerings (IPOs) in 2018 hit $8.44 billion, up 106 per cent on the 2017 total of $4.09 billion, although the pipeline into 2019 reflects a softening of the market, according to the latest HLB Mann Judd IPO Watch report.

“Despite the increase in funds raised, there were only 93 initial public offering (IPO) listings on the ASX in 2018, down from the 110 new market entrants in the previous year, but in line with the five year average,” said Marcus Ohm, author of the report and partner at HLB Mann Judd Perth.

“Unusually, for recent years, there were a number of $1 billion+ cap companies listing during the year.

“The three largest IPOs of the year (Viva Energy Group, Coronado Global Resources Inc. and L1 Long Short Fund Limited) raised $4.75 billion between them – 64 per cent of the total funds raised.

“As well as being one of the few growth sectors for the year, the Materials sector recorded the most listings – with 35 listings representing 38 per cent of all IPOs undertaken – compared to 29 listings in 2017.”

Continuing the trend of the past few years, small cap companies – those with a market capitalisation of less than $100 million – continued to make up the bulk of new entrants to the IPO market, Mr Ohm said.

“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.

“The total also remains well above the previous five year average of 50 listings.”

Mr Ohm said some companies had difficulties raising capital during the year, and this is reflected in the total number of IPOs that did not meet their capital raising goals.

“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.”

Mr Ohm added, on average, IPOs in 2018 experienced an underwhelming share price performance subsequent to listing.

“New markets entrants recorded an average first day share price gain of 5 per cent, but only 47 listings ended their first day above their listing price – a rather poor result given that the issue price of these IPOs was typically discounted.

“Year end gains were disappointing too, as on average, new IPOs for the year decreased in share price by 18 per cent by year end. This is a worse performance than other market indicators, with the ASX 200 recording a decrease of 7 per cent for the calendar year.”

The year end losses made by a significant number of IPOs in 2018 and general market conditions suggest that there is likely to be a reduction in IPO activity in the coming six months, Mr Ohm said.

“Unsurprisingly only 17 companies had applied to list on the ASX at the end of 2018, well down on the 37 that had applied at the same time in the previous year.

“The companies that have applied are hoping to raise $179 million, which is a 70 per cent reduction on the $603 million sought at the end of 2017.

“Materials stocks made up the majority of the proposed listings with seven listings, showing market sentiment still remains for this sector.

“Overall the pipeline appears to be soft and reflects the performance of IPOs and the wider market. This was evidenced in the final quarter of 2018 with sentiment perhaps being an important factor.

“Companies considering listing will need to clearly articulate their offerings and provide sound investor communication.”

HLB Mann Judd is an Australasian association of independent accounting firms and business and financial advisers, with offices in Australia, New Zealand and Fiji.

* Emerging, or small cap, companies are defined in this report as those with a market capitalisation of $100 million or less. All data excludes property trusts.