Early signs of renewed life in the NZ IPO market

To date 2015 has been a very slow year for new listings on the NZX. We are now almost at the three quarter mark and the solitary addition to date has been logistics company Fliway. If we go back to 2013 we’d had five listings by this point, and last year we’d had nine.

If we look at company size amount raised in the process, the difference is even starker. The majority of IPOs in prior years were also a lot larger than Fliway.

However, in recent weeks there have been signs suggesting we may see a period of renewed IPO activity in coming months. In particular:

• Australian IPO activity, often a good lead indicator for NZ, has picked up of late. In fact Vitaco, the company that owns Healtheries vitamins in NZ, will be the latest company to join the ASX at the end of the week.
• Closer to home, the NZ media have been talking about companies like Tegel Foods and Carter Holt considering a run at the boards by year end, and
• CBL Insurance has announced that it’s aiming to list in NZ and Australia next month.

So what is driving this increase in preliminary activity? There are two sides to any transaction, and from an investor viewpoint, as buyers of IPOs, not a lot has changed from earlier in the year.

Share markets are still volatile and the economic growth outlook has actually deteriorated. Recent IPOs also continue to perform poorly, underperforming the market by 4% on average (see the table below). Of course, we were worried about Greece and now we are worried about China, but the point is that investors still see considerable risk in equity markets, and even more around IPOs with little public track record.

So if the current impetus is not coming from buyers of IPOs, it seems likely to be coming from the other side of the ledger – the sellers. In other words, the private equity and management owners of the companies looking to list and their advisors at the investment banks are driving the current activity.

Viewing things from their side, the NZX has suffered a lot less than many other share markets globally in the share market turmoil caused by resurgent Chinese worries. Significantly for the sellers, valuation multiples here have held up reasonably well.

We are seeing company owners dipping their toes in and testing the waters to see if it’s safe to take the plunge.

I hope that we see many more exciting New Zealand companies list in the coming months. Milford is really supportive of companies listing on the NZX. If it’s done well, the process is great for the company’s involved and for the investors we represent.

But investors have good reason to remain very cautious. They will be looking for forecasts that are achievable, deal structures that minimise risk and valuations that reflect an uncertain but almost definitely slowing economic outlook globally.

Whether the early signs of renewed life we are seeing actually lead to successful listings or not will be up to the sellers. The onus will still be on them to be realistic.

David Rigby

Senior Analyst

_{Sources: Data in tables sourced from respective company prospectuses, stuff.co.nz, NZ Herald and IRESS.}

_{Disclaimer: This is intended to provide general information only. It does not take into account your investment needs or personal circumstances and so is not intended to be viewed as investment or financial advice. Should you require financial advice you should always speak to an Authorised Financial Adviser.}