Conditions are ripe for equity raisings, but boards have their heads in the sand. The few that have made the leap are being rewarded.
Australia’s active fund managers are almost out of ideas. Squeezed into a limited number of stocks/ideas by stretched valuations – Commonwealth Bank for example, is just too expensive on any metric – they’re willing to try their hands at new names or old names doing new things whenever given the chance.It doesn’t matter whether you speak to a large-, mid- or small-cap fund managers – they’re craving new ideas.
The former are price-sensitive – trading less than they were last year as shown by the fact cash equities volumes are flat despite the market’s 7.5 per cent jump, and are waiting for dips or discounted raisings. The latter are helping send CBA to $120 and WiseTech towards $100.But despite this, there is only a trickling supply of new deals, which is at odds with what’s happening globally; Australian ECM activity was down 50 per cent in the quarter, while globally it was up about 50 per cent.
We would argue these sorts of big policy changes are no different to pressures in the US, the UK, Europe or wherever – and in some of these markets you have near-term elections, which don’t seem to be dampening activity as much as in Australia. You can see that in the number of offshore bids for Australian companies – Altium, Adbri, CSR, Link, McGrath, MMA Offshore, Genex Power, A2B Australia – all of which arrived in the past five months.
The risk is the good times pass, and we waste this cycle where institutions are willing to underwrite their companies’ growth plans. If that happens, the ASX will shrink again this year and perhaps cement the expectation that our listed market is in structural decline and little more than a waiting room for private capital and/or offshore strategic buyers.
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