Commodities Only two company floats made money for share investors last year January 15, 2009 Toni Case
As share investors, there’s something special about getting into a company on the ground floor by purchasing shares at its listing, or initial public offering (IPO). But chances are, this didn’t happen for you last year as the global financial crisis took its toll on financial markets.
According to the 2008 IPO Watch by accountants HLB Mann Judd, 2008 saw a massive 72% drop in the number of companies coming to the market compared to 2007. There were just 68 new floats last year compared to 245 in 2007.
For investors who did manage to grab a float last year, very few made money on it. Just two companies were trading above their issue price by the end of 2008. The top performing company was Western Australian phosphate exploration company Phosphate Australia Ltd, whose share price gained 22 cents (or 110%) from issue to year end. The only other stock to record a positive return added just half a cent, or 2.5%, to its share price by year end.
As the year unravelled, new small cap listings continually lost value - shedding 58% from issue by December 2008; large caps lost a whopping 80%. The worse affected industry was the resources sector, where year end prices lost an average 70% on issue.
The largest IPOs were mineral explorer Ivanhoe Australia Limited, hotel and tavern asset manager Compass Hotel Group and investment company Ozgrowth Limited. Investors in Ivanhoe Australia were clearly none too pleased by their investment; the stock lost 22% of its value by the close of its first day of trading.
The top ten performing companies returned an average -12% between them to year end, compared to 389% in 2007. Returns from the 10 best performing companies ranged from 110% to -40%.
Small cap companies accounted for the overwhelming majority of fund raising in 2008. Mr Geoff Webster, director of HLB Mann Judd Corporate Finance and author of the report, said that the contribution of small cap companies to the total funds raised in the IPO market was the highest since the IPO Watch started in 2005.
“However, 2008’s small cap activity fell well short of 2007’s record 215 listings, and was the smallest number of listings in five years. An average of 150 small cap companies have floated each year from 2004 to 2007, compared to only 63 in 2008, representing a drop of 71 percent from 2007, 56 percent from 2006, 47 percent from 2005 and 49 percent from 2004.”
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