By Gus McCubbing
So far this year 17 companies have debuted on the Australian sharemarket, but only six of them are trading higher since hitting the boards, painting a grim picture for the state of the local IPO market.
Even so, major investors such as Regal Partners and Wilson Asset Management are confident the middling performance won’t affect the highly anticipated initial public offerings of homegrown artificial intelligence players Firmus and Sharon AI that are expected later in the year.
To mark the halfway point of the calendar year, The Australian Financial Review has compiled of list of stock performances of the ASX’s newest entrants, and the results are not pretty.
A third of the 17 debutants have shed more than 20 per cent of their value, with the lengthy list dominated by the mining industry.
“It has certainly been a lean six months for the local IPO market,” said Rushil Paiva, a senior equity analyst at Glenmore Asset Management. “A combination of the Iran war and inflation in Australia have made for a very tough backdrop.”
Gold explorers in particular headlined the laggards in the first six months.
MB Gold is down 25 per cent from its IPO price to close at 15¢ on Wednesday. Valiant Gold closed at 20¢, down from its March IPO price of 25¢, while 49 Metals, which debuted at 20¢, closed at less than 10¢.
But the worst performer has been a little-known mining company that has gold and copper assets in Cambodia and Thailand called Unity Metals.
Its shares have nearly halved in value since debuting on January 12 with an IPO price of 20¢ that also coincided with a crash in the gold price below $US4000 per ounce. On Wednesday, the stock closed at just 11¢.
The precious metal has been pummelled since the outbreak of the conflict between the US and Iran and the prospect of higher interest rates in the US that was hinted at by the new Federal Reserve chairman Kevin Warsh.
Gold had recorded double-digit gains for each of the past three years, thanks to a wave of central bank buying.
The resources sector accounts for seven of the 11 companies trading underwater since their debut.
Others include Barkly Rare Earths, Macallum New Energy, a Perth-based oil and gas exploration company, and gas explorer Eastern Gas.
Outside of commodities, the results were more mixed. Shares in high-profile bed retailer Koala popped nearly 12 per cent when it debuted on March 31, closing their first day at $3.80. But they have since dropped below their IPO price, closing at $3.08 on Wednesday.
Body piercing chain SkinKandy, however, defied a gloomy retail backdrop to jump nearly 7 per cent on its first day of trading in May. The shares closed at $2.41 on Wednesday, a gain of almost 10 per cent from its $2.20 IPO price.
Meanwhile, KTEK Aerosystems, which supplies airframes and other electrical components for combat drones, more than doubled when it debuted on May 18, closing out its first day at 41¢ after a float price of 20¢. Since then, the shares have eased back to 33¢, but this still represents a 65 per cent gain since its debut.
Another bright spot has been Canberra-based Boresight, which makes low-cost target drones for military use that are specially designed to be fired upon, so armies can develop tactics and techniques to defeat a drone threat and train soldiers.
Boresight shares closed at 34¢ on Wednesday, representing a nearly 75 per cent gain since it debuted last month with an IPO price of 20¢.
“Defence and AI have been the two hottest sectors year-to-date, which has seen two drone companies come to market and do well,” said Seneca small companies fund co-portfolio manager Ben Richards.
As for what this means for the next six months, Charles Aitken, investment director at Regal Partners – which is a major backer of both Firmus and Sharon AI – said the weaker start to the year would not hinder demand for the two major AI players.
“Most people will see that weakness as broadly irrelevant because the vast bulk of those IPOs were domestically facing, smaller companies, while Firmus and Sharon AI are effectively globally priced stocks,” Aitken said.
He is also expecting construction and fitout business FDC Consolidated, that is set to list on July 9, to perform well.
Wilson Asset Management’s Shaun Weick, who also has exposure to both Firmus and Sharon AI, was just as confident in the two companies that are set to duke it out in the Australian data centre space. That’s because Nvidia, the world’s largest chipmaker, has backed both of them.
“That means they are viewed as key parts of the ecosystem,” he said, “so I don’t think the weaker IPO market will be a handbrake on them.”
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