Story published by The Australian Weekend: Nov 19, 2016
Initial public offerings are finishing the year in barnstorming fashion, with a slew of listings scheduled despite the recent indifferent performance of several of the bigger floats.
By Tim Boreham
The ASX site lists 22 IPOs for the yuletide period which, like the retailers’ Xmas sales, we’ll deem to have started already. Eight more listings are advised as TBA, which we’ll assume means “to be announced” rather than “too bloody arduous”.
The last-minute logjam comes despite the $1.2 billion float of Inghams taking off like a clipped turkey and the postponement of the $2bn listing of energy utility Alinta.
Another biggie, the Charter Hall long WALE (CLW) property trust got away, but only after being reduced in size to a still-chunky $820 million listing.
Auto accessories group Autosports Group (ASG), which revved out of the blocks on Wednesday after a $160m raising, fared better.
A year ago, the IPO flow looked to be abating as the ASX flagged a crackdown on “westus speculatus” — that breed of Perth-based chancers dreaming up technology pursuits for moribund resource stocks. The backdoor formula worked a treat for a while. But most have struggled since. Hopefully the latest bunch has climbed the maturity curve.
Take Litigation Capital Management, which for a start enjoys the backing of well-regarded value investor David Paradice. A smaller version of listed big daddy IMF Bentham (IMF), LCM is seeking to raise up to $15m ahead of an early December listing.
“We have been working on a listing for the last 12 months and have been waiting for the stars to align,’’ says managing director and 11 per cent holder Patrick Moloney.
Litigation funding involves contingently financing cases run by lawyers and is synonymous with the sexy big-ticket consumer class actions taken on by the likes of Slater & Gordon and Maurice Blackburn.
The financing model makes for cleaner accounting because, unlike law firms, litigation funders don’t recognise work in progress as revenue (a practice that contributed to Slater’s dramatic challenges of late).
LCM’s $380m claims book is more about bread and butter corporate stuff (such as patent disputes) and insolvency work.
While the lawyers dig for business, the junior resources sector is spluttering to life, with a number of scheduled IPOs.
Davenport Resources, which is seeking to raise $5m-$6m, is emulating iron ore queen Gina Rinehart in targeting potash in Europe.
Davenport has acquired two sites in Germany’s central Thuringia region, which produced more than 100 million tonnes of the fertiliser ingredient before inconveniently being subsumed into East Germany.
Lithium Consolidated Mineral Exploration (L13), which plans to debut on December 21, is looking for the new-age battery ingredient locally and in Botswana and the US (Nevada).
In the gold sector, Panoramic Resources spin-off Horizon Gold (HRN), Great Boulder Resources (GBR) and Kalamazoo Resources (KZR) all plan to list.
Formerly Crazy Domains, Dreamscape Networks (DN8) is rustling up $25m ahead of a December 2 raising. The company has a one-third share of the local web domain name market, a sector once dominated by Melbourne IT.
And speaking of which, former Melbourne IT head Theo Hnarakis is the chairman of the Singapore-based Dropsuite, which is in the throes of raising $5m-$8m.
Dropsuite is a cloud-based platform that allows SMEs to recover and protect their digital assets with ease.
Unlike most of the aforementioned app plays, it is revenue generative with 103,000 paid users globally.
Mayfield Childcare is following a well-worn path forged by G8 Education, Affinity Education (taken over by private equity) and — dare we say it — the collapsed ABC Learning.
While some argue tending infants should remain a cottage industry and the domain of not-for-profits, get the location and vacancy rates right and it can be a nice business, thanks to the still-generous government subsidies.
Investors remain cautious, with Mayfield’s proposed $35m raising (to acquire 26 centres) shaved to $24m (for 16 centres).
Then we have the usual slew of Hail Mary hopefuls which still seem to be able to raise a few million.
Take Hear Me Out, which is not a marital tool for warring spouses, but a social media app which fulfils a function your dense columnist can’t quite grasp.
OpenDNA (OPN) listed on Wednesday on the back of a “proprietary (patent pending) artificial intelligence and machine learning technology that has the potential to assist digital businesses irrespective of company size or industry vertical’’.
OpenDNA’s $8m raising was oversubscribed, but the shares are now trading well under par.
Over at the India Fund — IPO date “TBA” — it’s a story of persistence as the manager of proposed listed investment company tries to scrounge $50m.
The IPO was announced in July, but the close date has been (again) delayed, to December 2.
Some IPOs will fire, some will fizzle; unfortunately it’s not easy to pick the obvious winners.
Overall though, getting in on the ground floor has been a profitable pursuit. According to OnMarket Bookbuilds, as at the end of the September quarter the 58 IPOs (calendar year to date) had returned an average 27 per cent, with a first day stag profit of 18 per cent.
The Weekend Australian accepts no responsibility for stock recommendations. Readers should contact a licensed financial adviser. The author does not own shares in the stocks mentioned.