Low-risk healthcare stocks shine in busy IPO market

November 26, 2014

 Shares in hospitals operator Healthscope have risen 21 per cent. Source: News Limited

 

 

MEDIBANK’S solid debut, at least for retail holders, underlines the appetite for stable earnings and defensive plays when investors are assessing a busy pipeline of initial public offerings.

 

In what fund managers and brokers describe as a “two-speed” IPO market, healthcare stocks are generally outperforming, while the majority of resources are struggling.

 

“It’s really a reflection of where the risk profile is,” said James McGlew, executive director of corporate stockbroking at Argonaut. “The risk profile is resources off and industrials on and in particular healthcare, with an ageing population in Australia, is not a hard story to make a case for.”

 

Medibank shares closed at $2.14 yesterday after a hugely popular $5.7 billion float, handing retail investors a 7 per cent gain in Australia’s second-biggest float. Institutions, which paid $2.15 per share, suffered a slight loss.

 

The company, sold out of the federal government’s hands, is joining a slew of healthcare and aged-care companies that have completed IPOs successfully over the past six months and have performed well since then.

Healthcare and aged-care companies dominate the top 10 biggest offerings in the six months to date, with Medibank, Healthscope and Estia Health ranking as the top three, Bloomberg data shows.

 

Healthscope, Australia’s second-biggest private hospital operator, has surged more than 21 per cent from its IPO issue price after raising $2.26bn.

 

Aged-care provider Regis Healthcare has jumped 14 per cent since its debut last month.

 

Estia, an aged-care operator set to list next month, has locked in $625 million from cornerstone investors in an IPO aiming to raise up to $834m. Dental care chain Pacific Smiles, which listed last week, surged 50 per cent from its issue price.

 

On the other end of the market, small resources companies which used to be the bread and butter of Australia’s IPO market, appear to be in bear territory.

 

“Resources have been under pressure … a lot of them gave got cancelled or reduced size, or done at a really significant discount,” said Chris Kimber, managing director at Kimber Capital.

 

Even those that did get away with their IPO have mostly traded below the issue price.

 

Oil and gas explorer Winchester Energy has lost 20 per cent from its issue price after raising $15m, while UIL Energy slumped 35 per cent. Likewise, more speculative offerings have traded at a big discount. BPS Technology lost 22 per cent from the issue price, and Anatara Lifesciences plunged 35 per cent.

 

“For smaller raisings under $100m, I think it’s already hard for them now. People are still more risk-averse, and particularly there is so much to do at the top end that you don’t have to take the risk,” Mr Kimber added.

 

Australia has witnessed an IPO boom since late last year as low interest rates and a fast-growing superannuation savings pool have led investments into equity markets, prompting more companies to renew capital raising plans. IPOs worth more than $13bn have been announced over the past six months, according to Bloomberg data, with more than $1bn worth of IPOs still yet to hit the ASX by the year end.

 

Pending are outdoor media company oOh! Media, Estia, online sportswear company SurfStitch, and fashion jewellery retailer Lovisa.

 

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