Virgin mulls ASX return after Ukraine and rates weigh on share market floats in 2022

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Virgin Australia’s owners have been considering a return to the Australian Securities Exchange after investors shunned stock prices last year due to geopolitical tensions and high inflation.

Virgin could be a high-profile listing in 2023, after a year in which the number of initial public offerings (IPOs) or listings by new companies fell by half between 2021 and 2022.

Businesses and investors have been fleeing high global inflation, high interest rates, the spread of COVID-19 and the war in Ukraine, all of which have increased the risk of a global recession.

The number of public floats fell by 54 percent between 2021 and 2022(Supplied: HLB Mann Judd)

In its annual survey of Australia’s IPO market, accounting firm HLB Mann Judd said there were only 87 publicly traded companies last year, down 54 percent from 191 in 2022.

And the public companies raised a measly amount of money from investors in 2022 — just $1.1 billion, down 91 percent from the record $12.3 billion a year earlier.

a bar chart showing how much money Australian companies raised on the ASX last year.
Funds raised by companies listed on the Australian stock market last year. (HLB Mann Judd: Delivered)

HLB Mann Judd Perth partner and report author Marcus Ohm said stock market volatility in 2022 was hurting demand for IPOs, as well as higher funding costs.

“Macroeconomic and geopolitical concerns, coupled with rising inflation, led the Reserve Bank to raise interest rates for the first time in 12 years, significantly impacting the stock market and subsequently IPOs,” he said.

Weaker market conditions allowed small companies to dominate IPOs, with 78 of the 87 publicly traded companies having a market capitalization of less than $100 million.

Mr Ohm said 2022 was a story of two halves for public floats.

“The first half of the year looked relatively healthy, with 59 new listings, which was similar to the 61 at the same stage in 2021,” said Ohm.

“In the second half of the year, the IPO market almost dried up.”

bar table with the price development of newly listed companies per sector

New listings on the ASX recorded an average loss of 2 percent in 2022.

In addition, companies struggled to meet their subscription targets, with only 70 percent of companies reaching their target amount by 2022, the lowest level since 2015.

“New listings have struggled to meet subscription targets throughout the year and also found it difficult to maintain and grow their share price,” said Mr. Ohm.

“The extent of any improvement in the 2023 IPO market will depend on the reduction of the macroeconomic and geopolitical factors currently affecting the markets.”

Virgin weighs public float

Virgin Australia plane in the sky.
Virgin profits will take off in 2023 amid high demand for travel. (ABC News: Andrew O’Connor)

Last week, Virgin Australia’s owner Bain Capital said it was considering relisting the airline on the ASX after it nearly collapsed during the pandemic.

Virgin traded the Australian stock market for 16 years but was forced into voluntary administration before being bought by Bain in 2020 for $3.5 billion.

Mr Ohm said Virgin would be a high-profile listing if a public float went ahead, with good timing given the airline industry’s recovery, skyrocketing airfares and the airline’s expectation to turn a profit by 2023.

“It is interesting to see that Bain Capital has recently announced that it is seeking advice on relisting Virgin Australia on the ASX,” he said.

“If the company goes public in 2023, it will be one of the largest IPOs in the market for some time, and this may indicate more confidence in the IPO market than the formal pipeline suggests.”

However, he cautioned that anyone thinking of investing in Virgin “want to be careful” because of the ups and downs in the airline industry.

Jude Lau, corporate advisory partner of HLB Mann Judd, said investors in public floats were drawn to the quality of a company’s assets and management.

“Beauty is in the eye of the beholder,” he said.

Commodity stocks shine

An image showing that miners made up the vast majority of stock market listings in 2022.
Resources stocks dominated ASX quotes in 2022. (Supplied: HLB Mann Judd)

Last year’s IPO winners were small stocks. Ohm predicted that lithium and gold miners would continue to shine due to strong commodity prices.

Seventy commodities stocks listed on the ASX in 2022. Of these, 63 were mining companies and seven energy companies, accounting for 80 percent of all listings.

At least two lithium companies, Evergreen Lithium and Patagonia Lithium, will be listed on this year’s ASX.

But Mr Ohm said that apart from mining companies there has been little profit so far in 2023.

“Market uncertainty continues to hamper any significant new listing in the market, with only 10 new entrants in the pipeline looking to raise an average of $8 million,” he said.

Close-up of red and green numbers on ASX board

Markets have started 2023 strong after a horror year 2022 in which the Nasdaq entered a bear market over fears that sharp rate hikes by central banks would push the global economy into recession.

Mr Ohm said it was impossible to predict what would happen in the markets this year, and investors should be ready for another unexpected major event that could have global repercussions.

He noted that amid the turmoil in the cryptocurrency industry this year, no companies in the industry had planned to list in Australia so far this year.

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