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Tech IPOs best performers on the ASX in 2016

Yolanda Redrup
Yolanda RedrupRich List co-editor

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Tech stocks that listed on the ASX in 2016 have comfortably outshone their counterparts from other sectors, with stronger returns for shareholders in their first year of public life.

A new report from OnMarket BookBuilds, a platform that gives retail investors access to initial public offerings, found there were 25 tech listings in 2016, which delivered a 69.5 per cent return to investors.

The next strongest sector was consumer staples, where seven newly public companies returned 37 per cent for their shareholders, and the financial services sector recorded the worst performance (of sectors with a substantial number of floats), with 15 companies losing 8.1 per cent of their overall value.

OnMarket Bookbuilds chief executive Ben Bucknell (left) along with managing director Tim Eisenhauer have tracked the performance of stocks that listed on the ASX in 2016. Louie Douvis

The study found there was a 12.9 per cent jump in the number of IPOs in 2016, with 96 floats and average returns across sectors also increasing 3.7 per cent to 25.4 per cent.

Of the 96 floats, 25 of them were technology companies, with the second highest sector being financials, with 15 businesses.

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OnMarket chief executive Ben Bucknell said this was a reflection of investors realising the power of technology stocks.

"We've reached a point in time where people have seen the power of mobile and it's shifted from the early days where people would read about interesting technology ideas, to a time when people are now seeing that translated into new and exciting business models," he said.

"There is also now the risk appetite for people to make tech investments a small part of their portfolio."

Two of the most successful floats were of logistics software company WiseTech Global and fintech business Afterpay.

WiseTech Global CEO Richard White. Louie Douvis

Trump effect

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Mr Bucknell said the underperformance of financial IPOs was likely linked to global uncertainty surrounding Brexit, the election of US president Donald Trump and what this would mean for interest rates.

"The safest prediction is there will be continuing uncertainty throughout 2017. We're obviously in new territory with the US leadership, but I would anticipate that investors will become more used to what effect it will have on the equities markets and the feelings of uncertainty will decline," he said.

The report stated that overall, newly listed companies outperformed the ASX200 by 17.9 per cent.

Despite small cap stocks generally being riskier investments in the longer term, floats of businesses valued at less than $50 million boasted the strong returns in the short term.

Small caps returned their backers an average of 32.2 per cent in 2016, compared to only 14.7 per cent for companies valued at over $50 million.

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Mr Bucknell said this trend was likely because smaller companies tended to be undervalued on listing.

"Perhaps due to the paucity of institutional funds for microcaps, companies need to under-price in order to attract retail investors," he said. "Or perhaps it is that a higher return is needed to offset the higher risk of companies seeking growth capital."

Momentum to continue

Looking ahead, the strong listings momentum is set to continue in 2017, with 26 companies already scheduled to list on the ASX. Research firm Frost and Sullivan noted last week that there were already 45 likely Australian IPOs in the pipeline.

"We anticipate a strong start. If the commodity rally continues, the number of resource-based IPOs could pick up after a few lean years. We also expect that more listed investment companies will come to market in 2017 after a strong 2016, where investors took advantage of their comparatively low cost for diversification," Mr Bucknell said.

Technology stocks may face a tougher run in 2017 however, with early reporting season signs suggesting some relatively high-profile companies will miss targets.

Aconex, GBST Holdings and OFX Group have all issued earnings downgrades in the last week and seen their shares be pummelled as a result.

Yolanda Redrup is the co-editor of the AFR Rich List. She previously reported on technology, healthcare and Street Talk. Connect with Yolanda on Twitter. Email Yolanda at yolanda.redrup@afr.com

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