Home' Australian Resources and Investment : December 2013 Contents VOLUME 7 NUMBER 4 • Australian Resources and Investment • 9
Outside the natural resources sector, IPO performances
have also been mixed. A third of all listings during 2013 have
achieved a positive gain, with the average performance a little
better than 'break even'. Large, established companies clearly
outperformed, witnessing average returns in the double digits
and win rates in the order of 80 per cent.
Double-digit returns by blue-chip share indices, such
as the ASX 200 and All Ordinaries, have provided a solid
backdrop for established businesses to list on the ASX;
however, a sluggish performance by small-cap share indices
has seen challenging conditions remain for companies earlier
in their life cycles. After dipping to mid-year losses of 16 per
cent, the Small Ordinaries index has rallied to break-even
territory; however, its underperformance versus blue-chip
indices has seen 'pre-revenue' companies continue to struggle
for investor support. Among speculative offerings during 2013,
win rates stand below 20 per cent, with the recent star debut
of Fertoz (FTZ) providing the sole source of solace.
Fertoz's strong $4-million August listing could provide
the catalyst for large-cap IPO support to shift up the risk
curve; however, at the time of writing, the pipeline of ASX
IPOs remains dominated by established businesses, limiting
nancing options for new speculative ventures.
IPO fundraising channels have become increasingly
concentrated. The ve top-ranking IPO advisers during 2013
have accounted for approximately two-thirds of deal value --
up from 55 per cent at the top of the previous bull market in
2007. The smaller quantity, but larger size of IPOs delivered
during 2013 has also inspired a trend towards greater adviser
collaboration. The frequency of IPOs with multiple advisers
has risen from around one in ve last year, to over half of
Using multiple advisers can facilitate larger capital
raisings, and spread risk. Our analysis suggests that oats
with multiple advisers tend to raise three times as much
capital as those with a single adviser; however, with a
lower concentration of reputation risk, the funding bene ts
associated with multiple advisers can be offset by more
subdued post- oat trading. Our analysis suggests that oats
with a single adviser tend to realise better average share-price
returns than those with multiple advisers, and those without
any named adviser.
The 'adviser effect' has been of little consequence for mining
ventures during 2013. The value of natural resources IPOs
has declined by 80 per cent during 2013, and while public
appetite remains constrained, private nancing has become
the lone driver of counter-cyclical asset development.
On that front, Dubai-based Allied Resources Limited
provides a rare source of inspiration. Supported by private
nanciers, the unlisted company has positioned itself to
'cherry pick' mining assets lacking capital and operational
expertise amidst the current downturn. After securing an
advanced gold project in Tanzania, which was relinquished by
IAMGold, Allied is targeting further acquisitions from large,
listed mining companies.
The opportunity has emerged as major miners accelerate
a recent trend towards portfolio rationalisation. Hosting the
world's fourth-largest savings pool and the largest mining
economy of any developed nation, logic suggests that
Australians should be approaching these counter-cyclical
investment opportunities from an advantaged position.
However, in reality, the under-representation of new
ventures entering Australia's public capital market transcends
the private investment sphere; while up to nine out of
10 United States pension plans invest in private equity,
participation by Australian superannuation funds appears
much more limited.
The Australian Private Equity and Venture Capital
Association estimates that only 1.2 per cent of the nation's
superannuation assets are allocated towards this asset class.
Amongst those that do participate, average allocation rates
are around half those witnessed in the United States and the
Sustained public-market aversion of developing assets
will therefore carry an opportunity cost. Privately nanced
ventures stand alone to ll the void, and with the local capital
pool shy towards this asset class, rst-mover bene ts in the
natural resources industry may shift offshore.
About the author
Tim Morris B.Comm & Sc
Tim is a partner at Sydney-based intelligence rm wise-owl. His career
has focused on natural resources in analytical and advisory capacities
for private and listed entities. Tim's coverage of large capitalisation
companies listed on the ASX has attracted top rankings in Bloomberg
analyst surveys. His weekly 'Float Watch' report on upcoming IPOs is
available at wise-owl.com.
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