IPO window closing?

So far in 2017 we’ve seen around 50 IPOs in NZ and Australia, a similar amount to what we’d normally see by this time of the year. However, the listings have been pretty small, with only 19 IPOs raising more than $10m, considerably behind previous year’s offers.

Day 1 returns (the measure of IPO under-pricing) have been broadly consistent with previous years, even after excluding the very smallest offers. However there have been 2 extremely successful IPOs this year, both raising funds with the aim of legally growing marijuana. Investor demand saw these IPO’s get high on day one! However, if an investor didn’t have the munchies for those two issues and avoided them, then average returns on the first day are reduced to 5%.

 

Average Return, 1st Day of trading

Average Return, 1st Day of trading, IPOs > $10m only

Average Return, 1st Day of trading, IPOs > $10m, Excluding Marijuana stocks

2017

14.1%

10.6%

4.8%

2016

17.0%

7.4%

7.4%

2015

14.2%

15.8%

15.8%

2014

4.8%

4.7%

4.7%

2013

7.7%

9.0%

9.0%

It is the performance following the first day that is of concern. One would normally expect that investors would be able to hold onto those initial gains for the first few months of trading. 

 

In 2017 it has taken just 2 weeks on average for an investable sized IPO to trade back to its original issue price, and it has declined further from there. Including the marijuana stocks boosts initial returns, but by week 6 an investor is still back to zero.

A sign that maybe the IPO window is closing?