IPO market review – who delivered in 2020?

Investors ready themselves for Covid-normal

And just like that, this crazy year is almost over. As we head into Christmas, Melburnians will breathe a sigh of relief after a marathon lockdown is lifted and the state readies for a “COVID-normal Christmas” – whatever that is.

While markets largely shrugged off the COVID effect, it’s been a difficult year for initial public offerings (IPOs). According to EY’s Global IPO Trends report, activity fell 38% by volume, and 81% by proceeds, during 2020, compared to the first six months of 2019. There have only been only 13 local IPOs in the first half of this year, with total raising of around $145 million, in comparison to 419 IPOs globally, raking in some US$69.6 billion ($98 billion).

Simple logic would tell you that listing during a pandemic is potential financial suicide. Markets hate volatility, fear, and uncertainty. And so, most IPOs either postponed or pulled the listing entirely. Fast forward to the second half of 2020, and the IPO market has done a complete backflip. Supported by a stunning recovery rally in the Aussie market and a booming tech and healthcare sector, the COVID-influenced lull in the IPO market quickly vanished.

In its place came a flurry of high-growth small-cap tech companies looking to list and capitalise on the country’s move to digital. Tech is the fastest-growing sector on the ASX with some analysts calling it the “Tech growth 2.0”. Coincidentally, IPO activity closely mirrored stocks that were doing exceptionally well during COVID-19. Another tailwind that added to the momentum was that the number of investors increased, with many first-time investors entering the stock market fray. According to analysis completed by economists at Paderborn University in Germany, investment trading activity increased by 13.9% for every doubling of COVID-19 cases, creating a sense of urgency for IPO hopefuls.

Despite the re-opening of Victoria, COVID-19 is still far from over. But neither is the Tech Boom 2.0. COVID-19 forced employees to work from home, triggering an accelerated digital transformation of all industries. What was slated to take place in three to five years, is happening right now. A good example of this is e-commerce and the Buy Now, Pay Later (BNPL) sector.

The success of Afterpay (APT) spawned a series of ‘BNPL’ ASX listings – such as Zip Co (Z1P), Sezzle (SZL), Splitit (SPT), Openpay (OPY), LayBuy LBY), PayGroup (PYG) and Zebit (ZBT). In the e-commerce space, MyDeal (MYD) listed at $1, after raising $40 million, and surged to $1.86 (it has retreated to $1.28). Peer-to-peer lending company Plenti (PLT), non-bank lender and Wisr (WZR) and wealth platform stock Moneyme (MEE) also arrived on the screens.

So who performed the best?

Below is a list of all the IPOs so far this year:

Topping the list was neobank Douugh (DOU) which back-door listed at 3 cents (using the ‘shell’ of failed telecommunications company Ziptel). The company doubled its share price on the day of listing and is currently trading at 30 cents. That’s a cool 900% gain. The worst-performing IPO was health technology and services company Emyria Limited (EMD), which listed in April at 20 cents and is now trading at 8 cents. The stellar performance of technology and healthcare-related companies (excluding the unfortunate Emyria) continued through to the IPO market, emulating what was witnessed on the ASX throughout the COVID-19 lockdown. Some of the more noteworthy IPOs were:

• 4D Medical (4DX) – A bio-tech whose imaging software helps to detect diseases such as lung cancer;
• Aussie Broadband (ABB) – which has more than 300,000 residential, small business and enterprise customers, making it the fifth-biggest provider of NBN services;
• Little Green Pharma (LGP) – while shares are down from its listing price, this medical cannabis stock is growing and exporting from WA.
• MyDeal.com.au (MYD) – Shares of the furniture and garden e-commerce platform soared on ASX debut earlier this month, but have since pulled back.

Looking forward, there are still a number of companies scheduled to list on the ASX before the end of the year.

• Nuix – Indexing and searching software provider;
• Fantastic Furniture – Bricks-and-mortar furniture seller;
• Vinomofo – Online wine merchant;
• Youfoodz – Prepared meal kits;
• SILK Laser Clinics – Beauty services and products;
• Hipages – A ‘tinder’ for hiring tradies;
• PEXA – the online property settlement platform being spun out of Link Administration (LNK); and
• Dusk – A candles and consumer goods business.

The number of ASX companies that listed in 2020 is down on the number of listings recorded in 2019. However, the stocks that did list in 2020 have done extremely well from a share price perspective post-listing.

According to HLB Australia, “on average there was a first day return of 24% across all new entrants, and an average gain by year end of 34%. This was a strong performance for Australian IPOs versus the S&P/ASX All Ordinaries Index, which increased by 19% over the year.” Investors looking to put their faith in high-growth tech or healthcare companies that are just about to list will be spoilt for choice. Of those companies however, there are no proposed IPOs of any significant size. It is a small-to-mid-cap, high-growth game; which if played, right can deliver exponential returns.

Management of these companies are clearly taking the old adage, ‘strike while the iron is hot’ to heart in their rush to the market.

Ishan Dan

Ishan is an experienced journalist covering The Inside Investor and The Insider Adviser publications.