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Transcript: Weekly Wrap 7 July 2023
Thank you for joining me this Friday this 7th July, I’m Grady Wulff, a Market Analyst with Bell Direct.
Market debutants in the form of IPOs were all the rage in 2021 with 240 companies listing on the ASX raising a combined $12.7bn on debut, the most since 2007. Investor appetite for newcomers was sky high.. but fast forward to 2023 and the number of IPOs on the market is a stark contrast. So far in 2023, we have seen just 14 companies debut on the ASX with a very lacklustre reception from investors. Just 2 of the debutants have been outside of the resources sector. Both of which are in the technology sector that is up nearly 30% YTD, but both have underperformed since debuting on the ASX.
The most successful IPO in 2023 so far has been Leeuwin Metals (ASX:LM1) which is up 57.69% since listing at the end of March. Leeuwin Metals has captured investor attention on a thematic front through its projects located in Canada and Western Australia showing highly positive results for nickel, copper, PGEs and lithium, all components of the EV and green energy movement.
And the worst performing newcomer to the share market in 2023 since debut has been ACDC Metals (ASX:ADC), which is trading 56.50% below its listing price at $0.09/share.
And the worst performing newcomer to the share market in 2023 since debut has been ACDC Metals (ASX:ADC), which is trading 56.50% below its listing price at $0.09/share.
Just this week, Australian chemical distributor Redox (ASX:RDX) listed as Australia’s largest IPO in 2023 raising $402m, resulting in a market capitalisation of $1.3bn. As the theme goes in 2023, the market reception of Redox was underwhelming with the company ending its debut session down 4.9% at $2.43/share. Chilwa Minerals (ASX:CHW) also joined the ASX this week on Wednesday listing at 20cps raising $8m at IPO. Again, shares in the advanced stage heavy minerals sands exploration company fell 12.5% at the closing bell of its debut session.
So why are IPO’s not a go for investors in 2023? Investor confidence is low leading to a lower risk appetite amid extreme volatility driven by geopolitical tensions, rising interest rates, high inflation and fears of a global recession.
With the cash rate now at 4.1%, the impact on the risk-free premium means that the required return from equities needs to be higher to justify the higher risk compared to leaving the money in the bank. Given this higher hurdle it is not surprising then that investors are slightly more risk averse. In addition, the higher interest rates will impact those businesses which are capital intensive and in some instances not yet profitable.
With the cash rate now at 4.1%, the impact on the risk-free premium means that the required return from equities needs to be higher to justify the higher risk compared to leaving the money in the bank. Given this higher hurdle it is not surprising then that investors are slightly more risk averse. In addition, the higher interest rates will impact those businesses which are capital intensive and in some instances not yet profitable.
We have also seen investors shift strategies away from discretionary spend and into the sectors that are outperforming in the current market conditions. Technology stocks have rebounded in 2023 amid the prospect of interest rate pauses on the horizon, in addition to the hype around AI capabilities emerging among technology providers.
Acusensus (ASX:ACE), a technology company with a mission to develop AI enabled road safety solutions, listed on the ASX on the 12th of January with an issue price of $4.00 and raising $20m at IPO. The stock is trading 8.31% higher over the last week, but since listing is down 15.25%, possibly due to the muted revenue growth expectation for the company over the coming years, compared to the broader technology industry.
So when it comes to investing in IPOs there are a few key things to consider.
So when it comes to investing in IPOs there are a few key things to consider.
These include: understanding the business,
- understanding the risks associated with the business and sector it operates in,
- understanding the capital structure and reviewing the financials,
- You may see a company like Acusensus in the right thematic – AI – but when assessing its revenue outlook and growth, it may not be the right investment for you compared to other companies in the same space.
Locally from Monday to Thursday the ASX200 fell 0.55% weighed down by the healthcare sector losing 1.7%, information technology stocks falling 1.66% and the materials sector falling 0.82%. Market volatility was driven this week by outlook for future rate hikes out of the RBA and Federal Reserve alongside recessionary concerns amid signs of slowing economic growth.
The winning stocks on the ASX200 over the four days were led by Costa Group (ASX:CGC) soaring almost 21% following the receipt of a takeover offer worth $1.6bn from Paine Swartz Partners. Silver Lake Resources (ASX:SLR) rallied 13.47% this week and Bellevue Gold (ASX:BGL) added just over 11% from Monday to Thursday.
AMP (ASX:AMP) took the biggest hit on the ASX200 this week with the company falling almost 10% as the Federal Court in Victoria ruled in favour of claimants against AMP in a class action known as the ‘buyer of last resort’ proceedings.
On the broader All Ordinaries, the winning stocks were led by Tigers Realm Coal (ASX:TIG) soaring 40%, while St Barbara (ASX:SBM) jumped 38.38% and Betmakers Technology Group (ASX:BET) rose 28.05%.
At the other end of the All Ords, Cokal (ASX:CKA) fell 22.50% this week, Sunland Group (ASX:SDG) dropped 20.45% and PSC (ASX:PSC) Insurance lost 12.55%.
The most traded stocks by Bell Direct clients from Monday to Thursday were CSL (ASX:CSL), BHP (ASX:BHP), Origin Energy (ASX:ORG), Brickworks (ASX:BKW), Elders (ASX:ELD), Lynas Rare Earths (ASX:LYC), MMA Offshore (ASX:MRM), and Champion Iron (ASX:CIA).
Clients also bought into Woolworths Group (ASX:WOW), while taking profits from Pilbara Minerals (ASX:PLS).
On the diversification front, the most traded ETFs by Bell Direct clients from Monday to Thursday were Global X Copper Miners ETF AUD, Vanguard Australian Shares Index ETF, and BetaShares Australian Major Bank Hybrids Index ETF.
Looking at the week ahead, Westpac consumer confidence data for July is out on Tuesday with the forecast of a rise to 1.5% for the month ahead, up from 0.2% in June as investor confidence is boosted by the RBA’s rate pause for July amid signs of easing inflation down under.
NAB Business confidence data for June is also out on Tuesday with the expectation of a decline to minus 6 points, down from minus 4 points in May.
Overseas, US inflation rate data for June is out on Wednesday with consensus expecting a slight dip to 0.3% for the month of June down from 0.4% in May, while the inflation rate YoY is expecting to slide to 3.6% for June on an annual basis from 4% in May.
China’s trade balance data for June is also out on Thursday next week, with the expectation for an increase in trade surplus to $68bn from $65.81bn in May.
And that’s all we have time for today, have a wonderful weekend and as always, happy investing!
