18/05/2015 - 05:05

Backdoor listing boosts small caps

18/05/2015 - 05:05

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The growing prevalence of backdoor listings, particularly among Perth businesses, offers positive news in a sluggish economy.

Ziptel was actually early in this wave of alternative listings.

The growing prevalence of backdoor listings, particularly among Perth businesses, offers positive news in a sluggish economy.

As the small business provisions in the federal budget highlight the importance of startups as a key economic driver, the role of the West Perth small caps hub in assisting new business models with their funding and investment expertise ought not be forgotten.

While many in the regulation and commentary space are critical of the rapid shift from minerals exploration to technology, the phenomenon is not new and its history is not all negative.

It reflects the necessary nimbleness of this part of the market and, right now, it is playing out with a spate of backdoor listings. Despite criticisms, this trend is offering genuinely positive news in an otherwise depressed market. It has altered the make-up of the total shareholder returns leader board for the 12 months ending April 30.

While IPOs don’t feature in TSR data in their first 12 months, backdoor listings come with a long track record, often with poor historic returns from which new peaks reflect significant value.

As a result, a host of seemingly new names has performed outstandingly for their investors. Led by communications group ZipTel at 58,900 per cent, most of the top performers result from reverse takeovers of moribund resources companies whose shareholders sought solace in a new sector after mining hit the skids.

ZipTel was actually early in this wave of alternative listings, making its debut on the ASX in June last year through a reverse takeover of resources company Skywards.

Former African Chrome Fields is in second place in terms of TSR with more than a 15,000 per cent return. It was relisted this year as JustKapital Litigation, a litigation funding business.

Otis Energy relisted in March as iSignthis, while White Eagle Resources has become XTD.

Aziana has historically focused on exploration and development of gold and bauxite projects in Madagascar. In March 2015, it announced an agreement to acquire artificial intelligence business BrainChip through a backdoor listing transaction, which has yet to be completed.

Among the changes are a few companies that no longer call Western Australia home, although many local investors will have remained on the register.

Data storage business Covata was previously known as Prime Minerals and is now based in Melbourne.

Silicon Valley-based online recruitment company 1-Page undertook a backdoor listing on the ASX through explorer Intermet Resources.

Not all backdoor listings are technology or services based. Queensland-based Australian Dairy Farms Group emerged from APA Financial Services in late 2014.

And there is always a contrarian, even when it comes to rebadging a resources company. Copper, gold, and nickel explorer Dakota Minerals was previously known as Oroya Mining and has emerged from a restructuring and asset sell-off to be a rare resources performer.

Rounding out the top 10 is Mission NewEnergy, a renewable energy player in the biodiesel space. Showing how fortunes can change, just two years ago it was one of the poorest performers on the ASX, but it has restructured, sold down assets and radically altered its strategy.


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