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Virgin Australia's owners have been mulling a return to the Australian Securities Exchange after investors shunned share market floats last year amid geopolitical tensions and high inflation.
Key points:
- In 2022, 87 companies listed on the ASX, down 54 per cent from 2021
- Of the new listings, 80 per cent were resources companies
- $1.1 billion was raised by firms in 2022, compared to a record $12.3 billion in 2021
Virgin could be a high-profile listing in 2023, after a year that saw the number of initial public offerings (IPOs), or share market listings by new companies, slump by half from 2021 to 2022.
Companies and investors took flight because of high global inflation, high interest rates, the spread of COVID-19 and the war in Ukraine, which have all raised the risk of a global recession.
In its annual survey of the IPO market in Australia, accounting firm HLB Mann Judd said just 87 firms listed on the stock exchange last year, down 54 per cent from 191 in 2022.
And the listing companies raised a meagre amount of money from investors in 2022 — just $1.1 billion, down 91 per cent from the record $12.3 billion made a year earlier.
HLB Mann Judd Perth partner and report author Marcus Ohm said 2022's share market volatility hurt demand for IPOs, as did higher borrowing costs.
"Macroeconomic and geopolitical issues, coupled with rising inflation, resulted in the Reserve Bank lifting interest rates for the first time in 12 years, significantly impacting the stock market and subsequently IPOs," he said.
Weaker market conditions saw small firms dominate the IPOs, with 78 out of the 87 listed companies holding a market value of less than $100 million.
Mr Ohm said 2022 was a tale of two halves for public floats.
"The first half of the year looked relatively healthy, with 59 new listings, which was comparable to the 61 at the same stage in 2021," Mr Ohm said.
"The second half of the year saw the IPO market all but dry up."
New listings on the ASX posted a loss of 2 per cent, on average, in 2022.
In addition, companies struggled to reach their subscription targets, with just 70 per cent of firms reaching their target amount in 2022, the lowest since 2015.
"New listings have struggled to meet subscription targets during the year and also found it difficult to maintain and grow their share price," Mr Ohm said.
"The extent of any improvement in the IPO market for 2023 will depend on the reduction in the macroeconomic and geopolitical factors currently impacting markets."
Virgin weighs public float
Last week, Virgin Australia owner Bain Capital said it was considering relisting the airline on the ASX, after it nearly collapsed during the pandemic.
Virgin traded on the Australian share market for 16 years, but was forced into voluntary administration before it was bought by Bain for $3.5 billion in 2020.
Mr Ohm said Virgin would be a high-profile listing if a public float went ahead, with the timing good because of the rebound of the aviation industry, sky-high airfares, and expectations the airline would make a profit in 2023.
"It is interesting to see Bain Capital has recently announced 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 market's biggest IPOs for some time, and perhaps hints at greater confidence in the IPO market than the formal pipeline suggests."
However, he warned that anyone thinking of investing in Virgin would "want to be careful" because of the ups and downs in the airline industry.
HLB Mann Judd corporate advisory partner Jude Lau said investors in public floats were attracted by the quality of assets and a company's management.
"Beauty is in the eye of the beholder," he said.
Resources stocks shine
Last year's IPO winners were small resources stocks. Mr Ohm predicted lithium and gold miners were set to keep shining because of strong commodity prices.
Seventy resources stocks listed on the ASX in 2022. Of these, 63 were mining companies and seven were energy firms, making up 80 per cent of all listings.
At least two lithium firms, Evergreen Lithium and Patagonia Lithium, are set to list on the ASX this year.
But Mr Ohm said aside from mining firms, there were slim pickings in 2023 so far.
"Market uncertainty is continuing to inhibit any significant new listings coming to market, with only 10 small cap entrants in the pipeline looking to raise an average of $8 million," he said.
Markets have seen a strong start to 2023 after a horror 2022 in which the Nasdaq fell into a bear market amid fears that steep interest rate rises by central banks would push the global economy into recession.
Mr Ohm said it was impossible to predict what would happen on the markets this year, and investors needed to be ready for another unexpected severe event that could have global ramifications.
He noted that amid the turmoil in the cryptocurrency industry, there were no companies in the sector planning to list in Australia so far this year.