A survey conducted by PricewaterhouseCoopers (PWC) has shown new company floats have produced outstanding returns for investors over the past 11 months. Initial public offers (IPOs) associated with small caps and large caps led the way with median increases in share prices after listing of 17 per cent and 24 per cent respectively.
The study showed small caps floats offer investors the greatest opportunities to maximise returns with 15 out of the 39 IPOs in the sector trading at a discount to their issue price, with eight of them offering a discount as high as 15 per cent or more.
Large caps however delivered better overall results due to the market support they usually attracted after the IPO was completed.
IPOs were confirmed as an effective capital raising technique attracting just over $6.2 billion in funds in the 11 months to November 30, 2005. This compares favourably to the $7.2 billion raised for the full year of 2004.
Of the $6.2 billion raised through IPOs, the investment and financial services sector contributed to more than half of the total, drumming up $3.3 billion alone, with the listings of Babcock & Brown and Macquarie Capital Alliance Management, each raising $1 billion, leading the way.
Reasons for the strength of this sector’s performance include investment from superannuation funds, a greater level of disposable income in general, and a climate of low interest rates.
And the IPO activity is not expected to end there, with PWC anticipating another 25 floats in December that will be seeking to raise $7.2 billion. These additional IPOs will bring the total number of floats for 2005 to 99 and mean collectively they have raised $13 billion in capital compared to the $7.2 billion raised by 97 floats in 2004.
On the basis of these results, PWC is predicting continued strong IPO activity in 2006.
“Assuming interest rates remain around current levels, we can expect another year of strong IPO activity in 2006 with between 75 to 100 listings. Capital raisings should remain solid in the investment and financial services sector and property, where investment fundamentals relative to the bond market remain sound,” said PWC corporate finance partner Greg Keys.
