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The best and worst IPOs of 2018

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If you have invested in an initial public offering on the Australian Securities Exchange this year and have actually made a profit, count yourself as one of the lucky ones.

More than 70 per cent of the companies that have listed on the ASX this year are in the red, and investors in 20 per cent of the new listings have lost more than half of their initial capital.

It’s a salutary lesson for all investors that new floats can sink fairly easily, especially in volatile markets conditions such as those we’ve experienced over 2018.

But the rough conditions on global markets are only part of the cause for many float flops, with some stocks having fallen sharply after their listing even during the period of the trading through the year when conditions were relatively calmer.

The reasons are as varied as the companies themselves, but it wouldn’t be too difficult to uncover cases where some have gained entry to the ASX club that should have been denied access if the financial performance bar for listing was higher.

Last month in a separate article I wrote that research by global financial consulting firm KPMG had found that around one-in-five of the companies listed on the ASX are close to being in a default position, representing about $5 billion in shareholders’ capital.

The listed market value of most of these “zombie” companies is below the value of their net tangible assets, and their cash flow is either negative or is only just servicing debt repayments.

In terms of many of the new listings this year that have either risen or fallen into negative territory, the reasons around their share price performance will be embedded in their post-listing business activity statements, audited accounts and ASX company announcements. Market sentiment is also a key driver.

Calculating the best and worst listing performances is simply a numbers exercise, comparing the share price paid by investors to participate in the IPO with the current trading price.

The $16.95 billion spin-off of supermarkets giant Coles by Wesfarmers in late November ranks as the biggest market float on the ASX in 2018, and since hitting the boards it’s lost more than $800 million, or 5 per cent of its value.

But Coles is by no means a poor performer in the IPO listing stakes, especially when compared against companies that have dropped more than 70 per cent and have no scope to pay dividends to their investors.

Another big float during the year was the Australian petrol refining and fuel supply network Viva Energy, which raised more than $5 billion in July at an issue price of $2.50 a share. It is currently trading at about $2, representing a fall of 20 per cent.

The top five

In 2018 it's been a very mixed bag, with listings from the materials and technology sectors continuing to dominate. The best-performing IPOs have all more than doubled since listing.

Heading the returns leaderboard since listing date is Adriatic Metals, a UK company with a mostly Australian board that has mining concessions in Bosnia and Herzegovina. Since listing in May after a $10 million capital raising, Adriatic has surged a spectacular 207.5 per cent (as of December 7). That's largely thanks to promising drilling results from its existing minerals deposits, which contained high readings for gold, silver, copper, lead, zinc and the barium source, barite.

Second best has been New Zealand dairy products group Keytone Dairy, which joined the ASX in July and has surged more than 107 per cent on the back of strong sales of its long life and powdered milk products in Australia, Asia and Europe.

Bringing up third place is IT group Security Matters, which delivers industrial cyber resilience solutions that enable companies to identify, react, and respond to industrial threats and flaws. Since listing in October its shares have jumped from its 20 cents issue price to 39 cents, representing a gain of 95 per cent.

Hemp oil producer Elixinol Global has had a rollercoaster ride through the year since its listing in January, having initially dipped from its listing price before staging a recovery through March, and then slipping again to a low point in August. Since announcing its results and a $40 million capital raising in September, the cannabis stock has hit a new high and is up 86.5 per cent on its IPO price.

Another top performer has been Australian educational technology company ReadCloud, which raised $6 million before listing in February and has since jumped 80 per cent, including 35 per cent on day one. ReadCloud provides an e-learning platform to secondary schools for e-books, and currently has around 22,000 users around Australia.

The bottom five

Yet, 2018 has been a disaster year for some IPOs, and these five stocks make up the bottom ranks in terms of returns since listing date.

Tietto Minerals, a gold explorer with projects in Cote d’Ivoire and Liberia, issued shares at 20 cents before its listing in January, peaking shortly after. But since then its share have dropped 67.5 per cent.

Food ingredients group Marley Spoon listed in July after raising $70 million from an offering pitched at $1.42 a share. Its shares are now trading at 45 cents, representing a fall of 68.3 per cent.

Financial services Raiz is also down more than 68 per cent since it listed in June at $1.80 per share, having raised $15.1 million. The stock is down to 56 cents.

US cybersecurity company WhiteHawk, co-founded by the former deputy head of US naval intelligence, Terry Roberts, has failed to impress since raising $2 million and listing in January. That's despite a strong market debut, with the stock rising 32.5 per cent on day one. But since then WhiteHawk has fallen back sharply, and is currently trading 75 per cent down.

In bottom place is Frontier Diamonds, a South African diamond company, which raised $4 million in January before listing on the ASX. It closed 5 per cent lower on its debut and has continued to lose ground ever since. It's currently trading 79 per cent down on its issue price, despite recovering the first gemstones from its operations in March.

Rank

ASX Code

Last Price

Since IPO %

IPO Price

1

ADT

$0.62

207.5

$0.20

2

KTD

$0.415

107.5

$0.20

3

SMX

$0.39

95.0

$0.20

4

EXL

$1.856

86.5

$1.00

5

RCL

$0.36

80.0

$0.20

86

TIE

$0.065

-67.5

$0.20

87

MMM

$0.45

-68.3

$1.42

88

RZI

$0.56

-68.9

$1.80

89

WHK

$0.05

-75.00

$0.20

90

FDX

$0.042

-79.00

$0.20

 

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Tony Kaye is an editor at InvestSMART (AFSL 282288). This article contains general investment advice only. It has been prepared without having regard to or taking into account any particular investor’s objectives, financial situation and/or needs. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. You should consider the product disclosure statement before making a decision about a product. This article does not reflect the views of WealthHub Securities Limited. The article was originally published on 10 December 2018.