Leading investors suggest the strong performance of small company stocks could spur a resurgence in initial public offerings (IPOs). However, they caution that companies must adapt to a ‘new normal’ by demonstrating their value through gradual sell-downs. Ben Griffiths, co-founder of Eley Griffiths, noted that successful IPOs like Virgin and Gem Life have sparked interest from retail investors, crucial for a thriving IPO market.
Griffiths highlighted improving consumer confidence as a potential driver for increased sharemarket participation. He also pointed out that the subdued IPO market is a global issue. Data from the Australian Securities Exchange reveals a decline in IPOs, with only 26 companies going public in 2024, compared to 32 in 2023 and 85 in 2022, significantly lower than the 195 IPOs in 2021.
According to Griffiths, the ‘new normal’ for IPOs resembles the US model, where vendors retain significant holdings and gradually sell down stock. He emphasizes the need for companies to earn their market value by delivering strong profit numbers and achieving re-ratings. Eley Griffiths is a fund manager that invests in a range of Australian equities, with a focus on small and mid-cap companies. Maple-Brown Abbott is an investment management firm that manages investments for institutions, superannuation funds and other investors.
Phillip Hudak, co-portfolio manager at Maple-Brown Abbott, highlighted the importance of aligning interests, where founders and management retain substantial stakes post-listing. He also noted the significance of attractively priced IPOs, sufficient liquidity, scarcity value, and the prospect of index inclusion. Richard Coppleson from Bell Potter observed a substantial shift in momentum from large-cap to small-cap stocks, with investors rotating their holdings into smaller companies, due to better value.
