Big valuations and a new ASX technology index are expected to fuel plans of early-stage tech businesses to try their luck on the local stock market in 2020 despite mixed success for IPOs last year.
While the country’s technology darling ‘WAAAX’ – Wisetech, Afterpay, Altium, Appen and Xero -stocks are worth tens of billions of dollars, the companies hoping to launch this year’s IPO season are smaller players.
COSOL Ltd will kick things off with a listing date of January 24 after raising $12 million selling shares at 20¢ each, to value the 20-year-old IT company at $26 million.
The business, which will be led by chief executive Scott McGowan, provides software services and IT consulting for miners and utilities companies to help them more efficiently use their capital-intensive assets and perform tasks such as data migration and storage of information.
It is being taken to the ASX by non-executive chairman Geoff Lewis, an IT industry veteran who three years ago sold his IT services business ASG Group to Japanese consulting firm Nomura Research for $350 million. COSOL posted a $1.9 million profit in 2019 and is hoping to further grow its proprietary software across clients in defence, utilities and resources.
“This space is getting more and more compelling. I think it’s going to grow well, and there are opportunities overseas,” said Mr Lewis, who will own 20 per cent of the company after the listing.
Commercial transaction software play thedocyard is also looking to list at the end of the month, seeking just $5 million in an IPO.
Australia’s initial public offering market threw up mixed results in 2019 particularly for technology stocks, with the pulled floats of Latitude Financial and PropertyGuru causing ripples of concern across the sector.
Some floats from last calendar year, such as Splitit Payments, are up more than 70 per cent on their issue price. Others, like small business lender Prospa and software play Nitro, have dipped below their IPO prices.
Meanwhile, the S&P ASX 200 Technology Index has returned more than 30 per cent over the past 12 months.
In February this year, the ASX will launch a ‘mini Nasdaq’, an expanded index including all technology stocks on the bourse to be called the S&P/ASX All Technology Index.
This index, combined with the high valuations of technology companies across the board, will tempt more tech companies into listing in 2020, said portfolio manager at 1851 Capital, Martin Hickson.
“When valuations are high, there’s a flood of companies trying to list, but it doesn’t mean they all get through,” Mr Hickson said.
Australia’s “high-growth” stocks are trading at a median price-to-earnings ratio of 46, according to a 2019 Goldman Sachs report, compared with a global average of about 25.
Mr Hickson said valuations continue to look “stretched” and he would be casting a close eye over the profitability of companies that hit the ASX.
“We will assess all new IPOs, however, [we] are focused on technology companies that are already generating strong earnings and cash flow, rather than concept stocks,” he said.
Bailador Technology Investments chief executive David Kirk agreed many early-stage technology businesses could consider listing in 2020, though not all should.
“I think it’s tempting but it can be a mistake,” Mr Kirk said.
It’s difficult for investors to pick how small cap technology stocks will be valued once they list, given it’s not always clear how their companies will grow long term, he said.
Smaller businesses can also face liquidity issues in a market dominated by a handful of billion-dollar tech stocks.
“You don’t want to be stuck in a situation where there is no liquidity,” he said.
Source: Thanks smh.com