WA accounts for 28% of non-mining floats: PwC

Western Australia has long dominated mining company floats on the Australian Stock Exchange but a new report has found that WA accounts for a growing share of non-resource floats.

PricewaterhouseCoopers' 15th Annual Sharemarket Float Report showed a national total of 71 non-resource listings in calendar year 2006 raising close to $7 billion, down on the prior year's total of 94 listings to raise $12 billion.

Of these listings, 20 were Western Australian companies which raised a total of $1.2 billion and had a combined market capitalisation on listing of $2.3 billion.

This was well up on the 14 WA listings of the prior year which raised $150 million with a combined market capitalisation of $560 million.

The report found that WA accounted for almost 28 per cent of non-resource related float activity during the year compared to 15 per cent in the previous year.

Approximately 90 per cent of the capital raised by WA floats in 2006 was done by four companies: earthmoving equipment supplier Emeco Holdings, biofuels producer Natural Fuel, modular building manufacturer Nomad Building Solutions, and mining services company Mineral Resources.

Collectively, these listings had a market capitalisation on listing nearly four times greater than the combined total of the other 16 WA loats.

A PwC announcement is pasted below:

2007 RIPE FOR FURTHER IPO ACTIVITY: PWC REPORT

The IPO pipeline for 2007 looks strong compared to last year when IPO activity declined 25 per cent, despite a market rise of 20 per cent. So says, PricewaterhouseCoopers' 15th Annual Sharemarket Float Report, which charted IPO performance for the year ended 31 December 2006.

The 2006 analysis shows that there were a total of 71 IPOs completed, raising close to $7 billion - excluding resources, compliance and backdoor listings. In comparison, the previous year saw 94 IPOs completed, raising $12.0 billion.

Greg Keys, PricewaterhouseCoopers partner and Head of Corporate Finance said, "2006 was a contrarian year, but IPOs were still a happy haven for investors. 62 per cent of all IPOs were trading above their issue price at 31 December 2006, with 75 per cent of these companies also outperforming the market. At this stage, the IPO pipeline is indicating that 2007 will be stronger."

The listing of Boart Longyear, the world's largest drilling services provider, is expected to raise c.$2.7 billion, while the partial float of San Miguel Australia (c.$1 billion), and Dairy Farmers (c.$1 billion) are also scheduled. If approved, the privatisation of Medibank Private (c.$1.5 billion) will further boost IPO raisings for the year and will break the six year drought of government sell-offs.

Prominent market trends from 2006 will continue to influence performance in 2007. The 'weight of money' - driven by strong superannuation fund flows, higher levels of M&A activity and private equity are all fuelling growth.

Greg Keys said, "We're seeing a strong increase in private equity activity in Australia, but this still lags the US and UK markets. As it matures further, deal competition for assets will remain intense and potentially hold values at or around their current high levels. We could therefore see some funds compelled to exit earlier - which would trigger further deal activity and IPOs."

In 2006, 11 IPOs cited 'vendor sell-down' or 'exit' as the primary purpose for listing, reflecting the competitiveness of exits via IPO (compared to a trade sale).

Greg Keys said, "It will be interesting to see whether the 'activist' role which institutional investors are currently playing in some of the high profile private equity deals will impact the attractiveness of public to private transactions going forward."

The property trust sector was the only sector to raise more funds in 2006 than the previous year. Greg Keys expects that the trend will continue in 2007 as property and high income-yielding investment vehicles remain attractive to investors in times of uncertainty as a 'flight to income' mentality gathers momentum.

Greg Keys said, "There is an emerging trend for Australian fund managers setting up offshore property trusts, particularly in Japan. The low interest rate environment coupled with the 'rising sun' feel to the Japanese economy is attractive at the moment and we expect to see more listings focusing on Japan and other overseas markets."

In 2006, large cap floats continued to achieve significant pricing premiums over small caps of around 45 per cent. Greg Keys attributes this to large caps generally being viewed as more established, less volatile businesses and therefore of lower risk to investors.

Forecast price to earnings ratios (P/Es) for small cap floats rose slightly to 9.1 times (compared with 8.5 times in the prior year), whilst P/Es for large caps rose more strongly, to 13.2 times (from 10.5 times).

Greg Keys concluded, "While IPOs are looking stronger in 2007, the Australian market, which is currently reflecting some investor uncertainty, is in a Goldilocks phase right now - not too hot and not too cold. No doubt the large amounts of cash still looking for a home in the Australian market and continued corporate activity will keep things on the boil throughout 2007."