How the IPO boom of late 2020 went bust

Both Booktopia and Liberty had previously made unsuccessful tilts at ASXs listings before COVID-19 was even an acronym. Remarkably, it was easier to finally pull off a float in the middle of a pandemic, as ultra-low interest rates and government stimulus measures boosted confidence and underpinned a ferocious resurgence for the sharemarket.

Yet while the same dynamic has lifted equities to fresh peaks in 2021, investors will be left with the overriding impression that the IPO class of 2020 has largely underwhelmed.

IPO doors blast open

Having been wedged shut for most of the year as global markets came to grips with the coronavirus pandemic, the IPO window blew wide open in September 2020.

First Advisors says of the 78 new listings in 2020, 54 took place in the final three months, with about $3.3 billion raised for 29 listings in December alone. There was $5.3 billion raised for IPOs for the whole year.

Morgans private clients advisor Simon Ferguson says the end-of-year rush was kicked off by a couple of successful IPOs in mid-2020, following a period of hibernation.

But the success of companies like Manuka Resources and Aroa Biosurgery were not necessarily an indicator of things to come.

“Investors thought perhaps that all floats go up, and not all do because not all companies are alike,″⁣ Mr Ferguson said.

“There was definitely a series of successful IPOs and the quality of the later ones wasn’t there.”

By early October – with markets more confident after a stronger-than-expected earnings season – the ASX was ready for online make-up retailer Adore Beauty.

Arguably the most hyped IPO of the year at that time, the company raised $270 million at $6.75 per share. It rose by as much as 9 per cent in its first session and reputedly attracted hordes of first time female investors to its shareholder register.

But Adore’s gloss quickly wore off, with a disappointing trading update and a rotation by investors away from COVID-19 winners in sectors like e-commerce, and into other areas poised to benefit from a recovery, hurting the share price.

A number of Adore’s heftier IPO contemporaries have also fared poorly after listing.

Of the 10 biggest floats by market capitalisation in 2020, just five had – as of this week – improved their share price.

These winners include Liberty Financial (up 31 per cent as of this week), real estate trust HomeCo Daily Needs (up 6 per cent), construction firm Maas Group (168 per cent higher), software company Hipages (4.9 per cent), and Booktopia (12 per cent).

Yet even of that contingent, only Maas, Liberty, and Booktopia have bettered the ASX 200 for returns since launching.

EY Partner and investment banking veteran Duncan Hogg admits the string of high-profile disappointments has taken the heat out of the IPO pipeline in 2021, with Airtasker, Latitude, Peppermoney and Peter Warren Auto among the more prominent floats in a “fatigued” market over the past six months.

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But Mr Hogg also says the IPO market in 2020-21 should not be seen as a failure.

While the Nuix scandal has put the spotlight on a number high-profile disappointments, he says the success of some small-to-mid cap firms this year largely been ignored.

Mr Hogg’s research shows investors would be about 18 per cent better off if they put $1 into every IPO since January 21, 2020.

That said, if you weighed those IPOs by market cap and invested on weighting, you would only be up 2.9 per cent.

Further, he says the top 10 IPOs by market capitalisation over the past 18 months have dropped by a combined 4.4 per cent, fitting with his theory that it is the larger names responsible for the subdued mood.

Big floats cast a shadow

Nuix has undoubtedly been the most spectacular implosion of the 2020 IPO heavyweights, with the company halving in value since its float. The decline follows a string of well-publicised govenrnance and disclosure problems, exposed in an investigation by this masthead.

Dalrymple Bay, meanwhile, is down 21 per cent since listing while Adore has lost 34 per cent.

Respirator firm Cleanspace is 59 per cent lower, and consumer lender Plenti has fallen 24 per cent.

Dusk and Universal Store have both bucked this trend to post gains, while the Phillip Britt-headed Aussie Broadband has nearly tripled in value since launching in October.

But an air of IPO disappointment lingers thanks to declines for the likes of online marketplace MyDeal.com (down 42 per cent), meal kit company YouFoodz (down 73 per cent), buy now, pay later Laybuy (64 per cent), and peer-to-peer lender Harmoney (down 64 per cent).

“We had such a significant IPO period, and with a few high-profile disappointments, we are seeing a bit of fatigue,” Mr Hogg says.

“That being said, my view is all we need is something like a PEXA to do well and I think we’ll be game-on again.”

PEXA – owned by Link, Morgan Stanley Infrastructure Partners and Commonwealth Bank – is hoping to raise $1.175 billion at $17.13 a share ahead of its listing on July 1.

This price would give the company a hefty market capitalisation of $3 billion and an enterprise value of $3.3 billion – making it the biggest IPO since 2018.

As for the remainder of the year, HG Hiscock portfolio manager Hamish Tadgell says the wash of liquidity should keep demand for equities high, and the IPO pipeline flowing.

“Liquidity has created demand and appetite for equities and the vendors are looking to sell into that,” Mr Tadgell says.

“I think as long as the equity markets continue to… remain strong like they are clearly there will be a continued pipeline and people trying to take advantage of that.”