High-quality companies with high valuations and low-quality companies with high valuations dominated this year’s IPO market. In between were a handful of strong IPOs with reasonable valuations – and prospects for further share-price gains in 2014.
I do not subscribe to the view that there has been a “bubble” in Initial Public Offerings this year. A rising sharemarket, five years of pent-up IPO supply, and a general overvaluation of small-cap industrial shares were always going to unleash a wave of them: more than 60, raising almost $10 billion, by my count.
But great care was needed in sifting through floats “priced for perfection” to find a handful of investment gems. Below are my top-five floats for 2013, chosen not only on share-price gains since listing; business quality and difficulties in closing the float were other considerations.
1. Virtus Health
Arguably the float of the year, Virtus raised $338 million and listed in June at $5.68 a share. The In Vitro Fertilisation (IVF) services provider had to convince investors to back an unusual company with no listed peer to compare with its valuation. It also involved a large private equity (PE) sell down at a time when PE-vended floats were on the nose. Strong demand for Virtus meant its PE vendors could make a full exit and the share-price rally to $8.50 paved the way for several other PE- backed floats this year. Listing in June, after the mid-year sharemarket pullback, was no picnic either.
2. Freelancer Ltd
Shares in the micro-jobs website soared from a 50-cent issue price to as high as $2.50 on debut, before settling at $1.28. Sure, a $600-million valuation for a loss-making website is not to everybody’s tastes, but rapid revenue growth gives Freelancer a chance of justifying its valuation in coming years. Its early success will also create a path for potentially dozens of information technology floats in the next three years – and a desperately needed larger listed tech sector. For that reason alone, Freelancer makes the list of top IPOs. A dominant position in the global micro-jobs market – which labour markets worldwide are moving towards – is another attraction.
3. Shine Corporate
Another IPO identified in this column in 2013. Shares in the Brisbane-based law firm have rallied from a $1 issue price in May to $1.80, making it a top-five float this year. As important, Shine provides much-needed exposure to the legal sector – principally third-party injury claims – which is underrepresented on ASX. Fans of Slater & Gordon and litigation funder IMF (Australia) understand the big changes coming in parts of the global law industry as it transforms from a seller’s to a buyer’s markets, and as more class actions are launched. Slater & Gordon’s early success in the United Kingdom shows the potential for Australian firms to export their legal skills overseas.
4. Indoor Skydive Australia Group
The emerging travel company, identified in this column in 2013, will barely get a mention in most IPO wrap-ups in December. But raising more than $6 million in January, when the IPO market was virtually dead, for a company with an asset yet to be constructed and no revenue or earnings, was a top effort. Shares in the provider of simulated wind tunnels rallied from a 20-cent issue price to 54 cents, making it the year’s second-best performing IPO by percentage gains. With its attraction due to open in Western Sydney in 2014, watch for more news from Indoor. Anybody who has followed simulated skydiving overseas understands the rapid popularity of these attractions.
5. SeaLink Travel Group
Contenders for the fifth spot included the impressive Steadfast Group, OzForex Group and Veda Group. But I’ll go with SeaLink Travel, owner of the SeaLink and Captain Cook Cruise Brands. SeaLink raised $16.5 million through the issue of $1.10 shares in October, now $1.55. Floating a business in Australia’s beleaguered tourism sector was hard work, and SeaLink showed solid, well-established industrial companies with rising revenues and dividends could stand out in an IPO market when “capital light” web-based businesses stole the show. It was also one of few floats that looked undervalued at listing.
– Tony Featherstone is a former managing editor of BRW and Shares magazines. This column does not imply any stock recommendations or offer financial advice. Readers should do further research of their own or talk to their adviser before acting on themes in this article. All prices and analysis at December 19, 2013.
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