A Donald Trump victory in the US election is the only risk to a $10 billion IPO boom on the ASX as companies scramble to sell into a market that has shrugged off COVID concerns and is now hunting for yield stocks and sectors that have prospered amid the pandemic.
Max Cunningham, head of listings at the ASX, said COVID-19 had provided the most stunning contrast in performance in the seven years he has been at the market operator.
“The second half of the last financial year was the worst six months for me at the ASX in terms of new listings, and this half that that we’re in is looking like the best half,” he said.
While the market operator is not expecting to achieve its usual 120 to 130 public floats this year, the second half rush could get the local bourse past the 100 mark.
The risk factor is the US election in November, which is expected to provide a lull in the float frenzy as the market awaits the outcome and whether it yields a surprise result for President Donald Trump.
“If this period of global uncertainty returns [after the US election] then it’s conceivable that the market slows materially for the rest of the year,” Mr Cunningham said.
EY partner Duncan Hogg said the uncertainty over how COVID was going to impact on earnings across different sectors was finally cleared during last month’s reporting season and the clear winners would be prominent in upcoming floats.
“Technology, healthcare and online retail have all performed particularly well during COVID and in fact a lot of them have shown growth,” Mr Hogg said.
Companies such as the Macquarie Group-backed tech group Nuix and online retailer Adore Beauty are good examples of this trend, but Mr Hogg pointed to the potential float of another company, Dalrymple Coal Bay Terminal, as another important trend: the hunt for yield.
“The reason they are trying to IPO it is because it is actually going to be a yield play,” he said. “And given the impact on real estate and financial services which have been the big yield generating stocks, they believe there is actually a market there for a new yield stock to come to market.”
He said the repurposing of Dalrymple from a trade sale by Canadian owners Brookfield to a possible IPO could become a trend.
“I think private equity will probably look at the IPO market as an alternative to selling their assets to others if these larger ones like Nuix, Dalrymple Bay and Adore perform well,” Mr Hogg said.
He said funds raised in IPOs could rise from just $300 million over the last couple of months to as much as $3 billion by the end of this year. According to market estimates companies worth up to $10 billion are expected to list by year’s end.
The ASX also points to tech stocks as one of the two big themes for this new wave of IPOs and the market operator says the tech pipeline for the rest of this year is what it would normally expect over an entire calendar year.
But the ASX says there is also a surprise comeback kid: Mining. The bourse has a pipeline that is multiples of the normal 6 to 10 mining companies that would list in any given year. “I think mining is being linked to the gold price, pure and simple, we’ve got an environment where gold has really rallied but been stable for an extended period.”
Source: Thanks smh.com