There were 191 ASX IPOs last year - many of them are now down over 70%

As we approach the end of the 2021/22 financial year, it's time to take stock of what has worked well over the last 12 months. If there was any one dominant theme for equity investors, it may very well be the changing landscape for earnings. A derivative of that shift in earnings has been the rush for new stock market listings - either via the traditional route (IPOs) or the new route (SPACs). 

The rush was huge all around the world - data crunched by research house White & Case found that there were more than 3,000 new listings globally that raised more than US$600 billion among them.

Data from Dealogic published in the Financial Times found that since then, the value of initial public offerings in the US and Europe has fallen 90% this year alone. Just 157 companies raised a total of $18 billion in the first five months of 2022, compared with 628 that raised $192 billion in the same period last year. The number of listings has also more than halved.

In this wire, we'll take a look at the year it's been in IPOs, the performance of some of the better-known names plus get some insights from Graeme Carson at Cyan Investment Management on where we go from here.

Global standouts

Of the five biggest global debuts last year, you could fit them into two loose categories - Asian companies making US entries or Tesla wannabes. 

In the first instance, the most well-known name is probably Coupang (NYSE: CPNG). The South Korea-based e-commerce platform went public with the help of Masayoshi Son's Softbank and San Francisco-based Greenoaks Capital. 

The bad news? It's down 73% since its March 2021 listing.

The other two names are more familiar to those who go for a night out on the town - namely rideshare services Grab (NAS: GRAB) and Didi Global (NYSE: DIDI). Both companies' share prices are also off more than 70% in the last year with the latter the scapegoat for many a conversation on the Chinese tech war with the United States. 

In the electric vehicles space, you can't go past Rivian (NAS: RIVN). The electric vehicle-maker raised the most money of all the VC-backed companies without even producing a single car at one point. Among its backers that are now licking the wounds of a 70% one-year fall - Amazon (NAS: AMZN) and Ford (NYSE: F). Finally, Lucid Motors (NAS: LCID) which is down a far more respectable 26% over the last year. It will long be remembered as a symbol of the SPAC hype.

ASX Fast Stats

Now that we've analysed the global picture, let's take stock of some fast statistics with the help of HLB Mann Judd's IPO Watch report.

• 191 new listings on the ASX in 2021
• Total funds raised for the year topped $12 billion – more than double 2020 levels
• 145 small-cap listings (market capitalisation less than $100 million), representing 56% of new market entrants
• Materials companies contributed the most
• 87% of IPOs met or exceeded their capital raising goals

Finally - and this is worth noting - there is a crucial correlation between first-day performances in the share prices of companies that meet their subscription targets (i.e. oversubscribed IPOs do better than those which are not.)

The billion-dollar ASX club

In researching for this piece, I also learned something quite remarkable - there were nine ASX IPOs with initial raisings of over $1 billion last year. That's a new record. Private equity also played more of a role than ever, contributing to 15 of the biggest 20 listings. Here are the five biggest debuts of last year and how they have done since then.

Prices are correct as of June 9th, 2022.

The smaller end of town

2021 saw significant growth in the number of small-cap IPOs listing during the year. The biggest bracket to see listings was in companies with a valuation of between $10-25 million. In turn, most of these companies belong in the materials space - including junior explorers and early-stage producers. 

Here are the five of the more significant debuts of last year in the small and microcap space and how they have done since then.

Prices are correct as of June 9th, 2022.

Analysis and insights: Graeme Carson - Cyan Investment Management

Graeme and the team at Cyan Investment Management know a thing or two about the smaller end of town - in fact, it's their specialty. He argues that bar the resources space (which they don't invest in), the opportunities have dried up.

When the market was strong through 2021 we saw strong deal flow, particularly in smaller companies, dominated by the tech and consumer discretionary sectors. A myriad of e-commerce companies came to market, the vast majority of which have performed poorly and proved to be very opportunistic.

Among the high-profile e-commerce debuts of the last two years are Adore Beauty (ASX:ABY) which has collapsed 75% in the last year alone. Hipages (ASX:HPG) are down nearly 60% in the same period. Airtasker (ASX:ART) has not escaped the same fate - the online marketplace business has also seen its shares fall by 75% since IPO. All three had strong press coverage - but that's not to say that needs to be the case for every IPO. As Graeme points out, no news can be good news.

I don’t see the profile of the IPO as a major issue, other than for the broking firms involved and the reputational risk if the listing is a poor one. If the demand for the IPO is particularly strong and investors only get a small portion of what they were looking it can create an unsettled share register, which can have a negative or positive impact depending on the success of the listing. 

So how do you filter the successful listings from the potential failures? It's all about following the story from the ground up.

We try to stay active in the pre-IPO market so we can see how a company has performed for a period of time when it finally comes to list. We look for a consistent story, financially, strategically and in the communication from management.

Graeme says it also helps if you find out why the company is coming to the public market. Though it may sound simple, it could provide you with clues about the team behind the listing or the brokers who are making it possible.

We are reluctant to invest in IPO’s that contain a big vendor sell-down, be it from management, private equity or venture capital. Likewise, if the capital is being used to retire debt it can be a red flag.

Ideally, the IPO company will be raising capital only growth capital to purely to execute on a strategy with an already proven existing business. 

What will 2022/23 bring?

2022 has already shown signs that 2021 was the peak for new listings. Apart from a slowdown in actual filings, there has also been a slew of withdrawals due to volatile equity markets, a bounty of macro headwinds, and/or tech regulation (especially true for Chinese companies trying to list in the United States).

Graeme says it will take a long time for the pipeline to be this strong again.

When the market pulls back as it has the ‘corporate window’ always closes. Retail investors have taken a lot of pain and investor confidence has been hurt badly. Further, when a company is looking to IPO it is a process that takes months from inception to listing. Companies that were expecting a certain valuation a few months ago now need to accept a valuation much lower. 

As of writing (June 9th, 2022), there are only 22 future listings on the ASX website. Most continue to come from the junior materials space as they seek to make hay while the sun shines. How long the sun shines before the private equity vultures come in to offer takeovers and mergers is another question for another time.

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