Analysts divided over 2009 IPO outlook

14/01/2009 - 22:00

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A DISASTER or a strong recovery - that's Martin Place Securities managing director Barry Dawes's each-way bet for what's likely to pan out in equity markets in 2009.

Analysts divided over 2009 IPO outlook

A DISASTER or a strong recovery - that's Martin Place Securities managing director Barry Dawes's each-way bet for what's likely to pan out in equity markets in 2009.

The bull in him believes it will be the latter, however, as investors and analysts leave behind an extraordinary 2008.

Among other things, last year was one that dented the aspirations of many businesses looking to float on the stock market, with 33 companies across the country withdrawing applications as liquidity dried up and sentiment backpedalled.

Of those companies deciding not to list, 13 were based in Western Australia.

However, the number of WA IPOs that pushed ahead with a listing without the aid of a broker was more indicative of the uncertain market, according to analysts spoken to by WA Business News.

In the first half of 2008, 18 out of 26 companies appointed brokers to manager their IPOs. Only six of 14 IPOs were handled by brokers in the latter half of the year.

In total, 40 WA companies made it to the boards in 2008, well down on the previous year's 130 and nowhere near the returns delivered by stocks that floated in 2007.

Phosphate Australia was the only WA stock to deliver a positive return to investors at the end of the year, with its share price 120 per cent above its 20-cent issue price.

The explorer was named best IPO of the year by Deloitte, having at one stage produced a gain of more than 300 per cent for investors.

On average, the share prices for new floats based in WA were down about 58 per cent against the issue price.

In comparison, the All Ordinaries index dropped 43 per cent and the S&P/ASX 200 slumped 41 per cent over the year.

Overall, the amount of cash raised by WA companies in 2008 was $291.4 million, well down on the $1.45 billion collected from investors in the previous year.

However for 2009, Mr Dawes, who managed the Anaeco IPO, believes it will be a better year with IPOs to pick up in the latter half of the year, particularly in the resource sector as commodity prices start to turn.

"Commodities started their bull run in October of 1998, so we've had 10 years of bull market," Mr Dawes said.

"And now we're seeing the next leg up, that's what the data is saying to me.

"If the commodity bull market is strong I think we're going to see a lot of IPOs in the second half of this year. It's going to be either a horrible or sensational year; and I think it's going to be sensational."

While Mr Dawes is optimistic, others are not so inclined, with some predicting IPOs will continue to decline in 2009.

PricewaterhouseCoopers head of corporate finance Angel Barrio said the market was not working properly as investors sat out and waited for prices to bottom out, while companies held on for as long as they could for improved conditions.

"Those in desperate need of funds or with excellent businesses are seeking innovative financing solutions and alternative sources of capital," he said.

"Certainly our experience is that more and more companies are requesting us to explore transactions of this nature before considering an IPO."

So far, two WA companies are looking to list, with Subiaco-based Kintore Resources delaying its float plans after originally setting a December 12 date.

Nedlands-based Dragon Energy, which has phosphate tenements in Mt Isa and counts Chinese company Shandong Group as its cornerstone investor, plans to list on February 18.

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