Red hot IPO market

It’s been a red hot market for initial public offerings (IPOs) during the first half of 2021, with IPO activity being at its highest in the last 10 years.

While a lot of these listings have been in the mining space, as they often are in Australia, another area with several new listings is the non-bank lending sector. Brands like Pepper Money (PPM) and Latitude (LFS) have recently become public.

When it comes to sophisticated sellers, such as private equity firms, their aim is to make businesses look good for sale in order to maximise their IPO price.

They get the benefit of information the investors buying don’t have access to and optimise the timing of the listing.

However, sometimes an IPO doesn’t go to plan and the share price can start to head south soon after listing. It may be the case that they’ve had some sort of short term issues or perhaps they’ve been priced too aggressively.

Adore Beauty (ABY), for example, is one of those. Adore is trading below its IPO price, and even though there were some initial hiccups, the underlying structure of the business’s long term trajectory in revenue growth is solid

Even though Forager doesn’t participate in many IPO’s at the time they happen, we do tend to take a wait and lie approach – particularly where there are long term tailwinds and a good structural story.

Steve Johnson and I discuss the above, as well as other recent listings in the Australian market in the video below:

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Alex Shevelev
Senior Analyst

Alex is a Senior Analyst at Forager Funds Management, responsible for researching stocks for the Forager Australian Shares Fund.

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