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ASX IPOs in 2018 averaged 8% return 1 month after listing

by Tim Eisenhauer, Managing Director, OnMarket
Sharesight partner OnMarket leverages Sharesight to calculate returns on IPOs through the OnMarket platform. In this post, OnMarket’s Managing Director Tim Eisenhauer shares some key data and findings from OnMarket’s 2018 IPO report.

Despite some reports about the death of IPOs, a more careful analysis reveals opportunities for investors to reap significant returns from a simple and systemic approach.

The 95 IPOs that listed in 2018 were up, on average, 8% one month after their respective listing dates. Consequently, a model portfolio created by a strategy of investing the same amount into every IPO in 2018, and selling one-month post listing, yielded a gross (pre-brokerage, pre-tax) annualised return of 70.8%*. This calculation takes into account that each investment into an IPO, earnt an average of 8% per IPO for 1 month before the shares were sold (and the funds reinvested).

OnMarket 2018 IPO Report

The OnMarket 2018 IPO Report which details Australian Initial Public Offering activity for 2018, includes performance methodology that measures each IPO for the same period post listing. This gives a truer reflection of actual IPO performance than measuring all IPOs at 31 December, as some will have been listed for 12 months, and some for less than a week at that date.

In 2018 the average IPO was 11% higher at the close of the first day than the issue price. Medicinal cannabis company Althea Group Holdings recorded the highest 1 day return of 180%. Holding onto IPO shares for a longer period post listing was not a winning strategy in 2018, with the average IPO performance falling from 8% up after one month to 0.3% after 3 months. A strategy of buying every IPO and selling after 3 months delivered 1.1%*, which outperformed the Small Ordinaries index, which was down 11.3% for the 12 months to 31 December.

The total amount raised in Australia through IPOs in 2018 was $7.8b, which is an increase from the $6.0b raised in 2017, this was despite the number of IPOs listing on the ASX falling year on year, from 113 to 95. Consumer Staples was again the best performing sector, returning 37.1% over 3 months and 21.8% to 31 December.

2018 ASX top 10 IPO performers

Price Performance from Issue Price over various periods

Company Name31 Dec Return1 Day Return1 Month Return3 Month Return3 years
1. Adriatic Metals PLC187.5%0.0%-5.0%135.0%Materials
2. Exopharm Ltd175.0%160.0%--Health Care
3. Elixinol Global Ltd150.0%45.0%38.0%67.0%Consumer Staples
4. Atomos Ltd96.3%22.0%--Consumer Discretionary
5. Keytone Dairy Corporation75.0%80.0%75.0%147.5%Consumer Staples
6. PayGroup Ltd63.9%74.0%88.0%62.9%Information Technology
7. ReadCloud Ltd57.5%35.0%80.0%50.0%Information Technology
8. Calix Ltd50.0%18.9%54.7%37.7%Information Technology
9. Security Matters Ltd47.5%5.0%105.0%-Information Technology
10. ClearVue Technologies40.0%5.0%-30.0%85.0%Industrials

*Percentage returns are calculated by Sharesight using the simple method.

ASX IPO sector performance in 2018

The Materials sector again provided the most number of new listings, with 35 companies joining the ASX. This continues the trend of the previous year where Materials made up 31% of listings in 2017. Listed Investment Companies (LICs) were less abundant than in previous years, almost halving in the number of listings to 13, and funds raised to a total of $2.5b.

Information Technology was the only sector to increase the actual total number of listings from the previous year, increasing from 11 to 17 listings, reflecting the ASX’s ongoing emphasis to be an attractive listing exchange, especially in Asia for Information Technology companies.

The sector had four of the top 10 best performing IPOs for 2018, led by PayGroup Ltd +63.9%, and e-learning solutions platform ReadCloud +57.5%. Environmental technology company Calix Ltd +50.0% and digital security provider Security Matters +47.5% completed the four best performing Information Technology sector listings.

Many of the best performing IPOs in 2018 came from companies of health products and services. This was led by returns at 31 December of biopharmaceutical manufacturer Exopharm +175.0%, Elixinol Global +150.0% a manufacturer and producer of CBD hemp oil, Emvision Medical Devices +40.0%, and medicinal cannabis producer Althea Group Holdings +22.5%.

Download and read the PDF of the full OnMarket 2018 IPO report here

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