2015 has been a much slower year for NZX IPO’s. The 13th October 2015 brought an increasingly rare event in New Zealand’s financial markets: a new listing on the NZX. Since then, shares in building insurer CBL Insurance have done well (up almost 30%) which sees it join an even more elite club – that of NZX IPOs trading above their offer prices, generating a positive return for investors taking part in the float.
CBL was just the second NZX IPO this year, after logistics company Fliway in April. Around this time last year we were welcoming Orion Health to the NZX in the 10th of what were to be 12 listings in 2014. The paucity of new listings this year is even more marked as media reports suggest household names such as Carter Holt and Tegel have considered and then backed away from the public market.
Opportunities still exist in Australia
Australia has also seen a reduction in IPO activity this year, suggesting that regionally if not globally investor appetite has been lower. Nevertheless, year to date Milford has been able to take a good hard look at over 20 new offers in Australia. This is still a very good number of investment opportunities.
The factors that potentially contribute to this Trans-Tasman disparity are numerous and often complex – certainly too much so to discuss each in detail here. But there are a few worth taking a quick look at.
Australia is simply a larger market
One simple answer is that the greater size and liquidity of the Australian market helps. Across the Tasman there are more domestic companies suitable to list. Thanks in part to a well-established superannuation industry, there is also more money to invest in financial markets and a greater number of investors looking for value via a wider variety of strategies.
Source: Stats NZ Sep 15, ABS March 15. Companies office Jun 15, Australian Business Register. NZX, ASX websites.
Australia also benefits from IPO migration
Perhaps lured by the greater liquidity of the Australian market, we have also seen a growing number of Kiwi companies either dual list on both the NZX and the ASX (CBL this year; Metroglass, Intueri, Vista, Orion and Gentrack last year) or, in the case of Martin Aircraft, eschew the NZX altogether.
Source: ASX, NZX, Company prospectuses
This flow of listings just doesn’t occur in the opposite direction. In fact several significant ASX IPO’s this year have featured Australian companies with large NZ operations and even well known NZ brands that surely would have strong recognition amongst retail investors.
In particular Vitaco, whose shares are up around 35% since listing in September, owns the Healtheries vitamins and Nutra Life supplements that are sold in most supermarkets and chemists in New Zealand. Most of the products they sell across Australasia and further afield are even made in Auckland based facilities.
Consider also Link Group, which has been the largest AU float so this year at an initial market cap of A$2.3bn. While the name may not mean much to individual investors, it should be well known to institutions. The company does fund administration and share registration for about half the NZX50. Shares in Link have done well too, up c. 20% in the last month.
The significant performance gap
But I believe perhaps the most significant reason there are more Australian IPO opportunities at present is their significantly better performance, on average, than those on the NZX.
As the table below highlights, the comparison is stark. Since the start of 2013, shares in 87 ASX IPOs have risen an average 41% on a simple, unweighted basis (range from +980% to -85%). This is despite the broader ASX market being down in the period.
Source: ASX, NZX, Company prospectuses
On the other hand, shares in NZX IPOs since 2013 have on average risen by less than the market (on a capital basis excluding dividends). Indeed, nine of the 12 NZX listings since the government floated Meridian, Mighty River and Genesis are trading below their IPO price – by a whopping -26% on average. The notable exceptions are insurer CBL, cinema software company Vista (+155%), and apple grower Scales (+39%).
Demand and supply for IPOs, as with most aspects of financial markets, is heavily influenced by market sentiment – broadly the level of confidence buyers and sellers have that investing will provide good returns.
In Australia, strong IPO performance has lead to something of a virtuous cycle. Good returns in the past encourage both new companies to list and investors to participate in in future offers. In turn, this makes those future offers more likely to succeed. However, in NZ poor performance has resulted in increased investor caution, potentially even scepticism and, for some investors with burnt fingers, even ill will toward NZX IPO’s.
No sign of change near term
Looking toward the traditionally quiet Christmas period and into the New Year, prospects for NZX IPOs continue to look muted. Near term, the potential exception is AFT Pharmaceuticals, which the media is saying may look to do a dual listing sometime soon.
In contrast the ASX has several new listings scheduled before year end and a backlog of opportunities ear-marked for 2016.
Milford is very supportive of companies listing on the NZX if it’s done well, with reasonable valuations and financial forecasts, it’s very positive for Kiwi companies and investors alike.
Disclosure of interest: Milford Funds Ltd. holds shares in AFT Pharmaceuticals, Scales, Vista Group, Vitaco, Meridian Energy, Mighty River Power, Genesis Energy, Metro Performance Glass, Orion Health, and Link Group on behalf of clients.
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.