Contact: Melinda Loew
Deloitte
Media Relations
(02) 9322 7146

Contact: Steve Woosnam
Deloitte
Partner, Corporate Finance
(02) 9322 7531

A December boom in IPO activity is expected to lift the number of public company floats from 172 in 2005 to a record 192 in calendar 2006, according to the latest Deloitte IPO Report.

However, the amount of funds raised by IPOs will almost halve from $15.2 billion in 2005 to $8.5 billion (excluding T3).

Deloitte Corporate Finance Partner, Steve Woosnam, said the drop in value of IPOs reflected a number of factors.

“Last year’s total was boosted by large infrastructure and listed investment company floats, which have been fewer in number in the past 12 months,” he said.  “The drop in value also reflects a decline in IPOs among established industrial businesses – the traditional fare of the equity market investor,” Mr Woosnam said.

“Private equity funds have kept a number of potential IPOs away from the public market, including most recently the $100 million plus IPO of Australian Temporary Fencing which was withdrawn in favour of a sale to private equity.”

Mr Woosnam said IPOs in 2006 produced an average share price gain of 43%, substantially higher than previous years, although the average was boosted by exceptionally high returns from resource IPOs. Resource floats accounted for eight of the 10 best performing IPOs during the past year.

The highest return was 395% for Perth-based Red Hill Iron, while the minimum return among the 10 best performers was 200%.

At the other end of the performance spectrum, resource IPOs also accounted for seven of the 10 worst performing IPOs, highlighting the high risks as well as the high rewards of investing in Australia’s resources boom.

10 best performing IPOs

The top performing IPO for 2006 was Red Hill Iron, which is exploring for iron ore in the West Pilbara region. The company is also prospecting for base metals and gold.

The 10 top performing IPOs for the year produced an average gain of 263%, and investors in any of the top 10 experienced share price growth of at least 200%.

Eight of the top 10 IPOs were in the resources sector, highlighting the effect of high commodity prices and speculative investment on the boom in IPO activity in 2006. Three of the top 10 IPOs were involved in uranium exploration – A-Cap Resources (up 332%), Fairstar Resources (up 250%) and U3O8 (up 230%).

IPO activity by industry

The resource-dominated materials sector generated the greatest IPO activity by industry in 2006 in terms of number of floats and value of funds raised.  The sector is set to produce 77 IPOs by the end of the year, with total capital raised of $1.7 billion.  The next largest industry sector by value was real estate ($1,239 million), followed by diversified financials ($1,407 million) and capital goods ($1,195 million).

Share price performance by industry

Among sectors with larger numbers of IPOs, the best returns were in software and services, which produced 4 IPOs with share price gains ranging from 32% for APA Financial Services to 110% for Bravura Solutions.  The next best return by industry sector was in capital goods, which is host to a number of engineering and mining services firms that are riding high on the resources boom.

IPOs by state

New South Wales generated the greatest value of IPO activity for the second consecutive year, with 49 IPOs that raised a total of more than $4.3 billion. However, this was less than half the value of IPOs in NSW in 2005.

In Victoria, IPO activity reduced significantly in 2006, in sharp contrast to the 2003 and 2004 years, when it was the state with the largest number of IPOs by value. Victoria is set to produce only 17 IPOs this year, with total capital raised of $343 million, compared to $4.7 billion in 2005.

Western Australia overtook Victoria to become the second largest state by value. The number of WA-based IPOs jumped from 54 to 99, while the value of funds raised more than doubled from $1.1 billion to $2.3 billion.

IPO activity also increased sharply by value in Queensland and South Australia. The total amount raised by Queensland-based IPOs increased from $487 million to $1.2 billion, reflecting the $724 million IPO of Rivercity Motorway.

South Australian-based IPOs increased from $133 million to $309 million thanks to a $200 million float by Adelaide Managed Funds Asset Backed Yield Trust and a buoyant resources sector.

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