Financial Report: IPO Performance of Australian Companies (2013-2017)

This report provides an in-depth analysis of initial public offerings (IPOs) on the Australian Securities Exchange (ASX), focusing on the financial performance of companies like Dick Smith, Veda Group, and Nine Entertainment Corporation. The report examines the funds raised through IPOs, the extent of underpricing by comparing issue and closing prices, and the cyclical nature of IPO activity influenced by economic factors. It evaluates the performance of these companies post-IPO, assessing the impact of additional returns, such as dividend yield, on share performance. The analysis reveals varying degrees of success among the companies, highlighting the importance of effective financial management and strategic utilization of IPO funds for sustainable growth and shareholder value. The cyclical nature of IPOs and the impact of economic factors on market activity are also explored, providing a comprehensive overview of the IPO landscape.

MANAGING FINANCE

Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY ..................................................................................................................................3
a) Three initial public offering On Australian securities exchange............................................3
b) Australian IPO in general ......................................................................................................4
Extent of underpricing by comparing issue price and closing price ..........................................4
IPO activity is cyclical ...............................................................................................................5
Evaluation of performance..........................................................................................................7
Impact of additional return the dividend yield shareholder received in the same period on
share performance.......................................................................................................................8
CONCLUSION ...............................................................................................................................9
REFERENCES ............................................................................................................................10

INTRODUCTION
Managing finance is related to utilising the resources in the effective and efficient manner
to enhance the profitability of the firm. In this assignment, It will include Dick smith, Veda
group and Nine entertainment corporation as there initial public offering is more than $100
million. Dick smith is involved in retailing business and provide products and services related to
consumer electronics. Veda group provide commercial services. Nine Entertainment
Corporation is a publicly listed media company and is involved in industry of media. In this
assignment, It will provide information regarding funds raised through IPO is invested in the
viable projects or not.
MAIN BODY
a) Three initial public offering On Australian securities exchange
Initial public offering is the way of offering shares in the private companies to the public
for the first time. The three companies which has raised funds through the use of Initial public
offering consist of Dick smith which is involved in the retailing business and provide the
consumer electronics. The funds raised by Dick smith were of about $345 million in the year
2013. On the other hand the another company which is considered is Veda group that is involved
commercial services. It provides information and analytic services to businesses and consumer
to assist them in decision making process. The Veda group offer to raise $341 million in order
to raise capital top reduce the company's existing debt. Moreover, the funds are raised to provide
Veda with access capital market and to provide the liquid market for its shares and opportunity to
other to invest in Veda. The Veda has listed the shares on Australian stock exchange with the
Code VED. Nice entertainment corporation limited is involved in the media industry and provide
The entertainment services to customers. The funds raised by this company is equal to $ 643.3
million which will be used for the repayment of the debt drawn on NEC's facilities. Proceed of
the offer will be applied to increase in cash and cash equivalents which will assist in increasing
the working capital of the organisation The shares were listed on the Australian stock exchange
which are registered with the code NEC. The funds raised will be used to pay to Anchorage for
the sale deed. These companies raised the funds to meet their debts liabilities and to increase
their capital structure.

b) Australian IPO in general
Initial public offering help the private companies in raising funds for the first time
through the public offering. It is required that the company is registered at the Australian stock
exchange for offering their shares to the public. The Initial public offering are the costly way of
raising long term finance for the corporation because it increases the cost of offering. There are
various cost associated with the offer which increases the expenses of the firm. The firms using
the initial public offering for raising funds is expensive than other sources of finance as it
increases the cost of the firm on registering with Australian stock exchange and for promoting
the shares to attract the investors. Through this process, the privately held company is
transformed into public company. After the IPO the shares are traded freely in the open market.
There are cost involved in offering through IPO which consist of legal fees , bank charges (Why
Has IPO Underpricing Changed over Time?, 2017) . The equity finance raised through IPO
brings changes in the cost of equity of the firm because it increases the equity due to which the
existing shareholders value is degraded. The stock prices after the IPO increases as it indicate
that the company can raise more funds. The Initial public offering by Dick Smith which value
the company at almost $ 550 million. The cost of offering shares to the public is higher as it
increases the cost of different fees and charges for offering the shares of the company to the
public. The Veda group will provide the external existing financing in the full and will issue the
shares through IPO and the new capital share which will increase the cost of equity of firms. The
Nine Entertainment corporation with the help of Initial public offering is able to raise funds but it
has increase the cost of equity of the raising the funds as it include the cost of issues the shared
through IPO. According to Alhada, Clacher & Keasey (2015), Cost of equity is increased after
the IPO which increases the value for the firm and attract more investors towards the
organisation.
Extent of underpricing by comparing issue price and closing price
Underpricing at the IPO means the company offer the shares to the public through IPO
less than the market price of the shares.
First day Dick smith Veda group Nine entertainment
limited
Open $ 2.28 $1.74 $ 2.02

Low $2.16 $1.63 $1.975
high $2.32 $1.78 $2.07
Close $2.20 $1.75 $2.98
Offer price $2.20 $1.25 $2.05
On the basis of the above comparison it has provided information regarding the first day
of trading for the IPO's. The Dick Smith share price moved either side of its issue price in the
first few weeks. It was high on the first day but subsequently fell away. The share price has
fallen 83% below its issue price after two years. The offer price of the IPO was $2.20 for raising
the funds of $345 million. On the other hand, Veda group the closing price of the share is $1.75
but the offer price of the share is $1.25 which shows that the shares are being under-priced in
order to attract the investors. Also, in the first few weeks of trading the Veda group has traded
above the issue price (Why Has IPO Underpricing Changed over Time). Nine entertainment
limited offer price of the share issue through IPO was $2.05 whereas the closing price of the
shares was $2.98 which shows the shares were under priced. The underpricing for the shares is
different in the industry as shows by the above table which has provided information regarding
the underpricing of the shares with comparison to that of closing prices.
IPO activity is cyclical
As per the Deliotte 2018 IPO review, It is identified that around 115 companies were
listed in the years 2017 as compared with the 2016 whereas only 94 companies were listed. The
report provided that the financial service industry is the key driver of IPO activity in 2017
(Ammer & Ahmad-Zaluki, 2016). The Deliotte report reviewed that by the end of 2013 the 61
IPO are finalised from 48 in 2012.
It is being seen that the number of IPO's are increasing over the year. It shows that the IPO
activity in Australia is having the increasing trend as the number of firms listed on the ASX are
increasing and offering the shares through IPO. The cyclical IPO is affected by the factors of
economy. The IPO activity during the period is increased from the period 2007 to 2017.

On the basis of the above image which provide information regarding the sector wise
break of the amount raised in the year 2017 by IPO (Taking stock: Deloitte Half-year 2018 IPO
Report, 2018). The large number of IPO were accounted in the financial service sector.
Illustration 1: Sector Analysis
( Source : 2017 IPO REPORT, 2017)

The above graph shows the information regarding the IPO activity on the ASX for the
period 2008 to 2018. The growing trend of the IPO activities state that the number of companies
listing on the ASX for raising the funds through IPO are increasing (Share price performance
after the public float, 2018). Over the period there has been increase in the number of the
companies listed on ASX and the amount which is being raised through the IPO.
The rise in IPO activity is due to large number of investors are attracted by trading
publicly through listing the company on ASX due to this there have been in crease in the IPO
activity over the period (Zattoni and et.al., 2017). The Australian economy is growing because
with the increase in IPO activity the sector in the economy are developing and thus the overall
economy is affected. The IPO activity is cyclical because it appears in the every period and the
new companies are listed on the ASX for trading publicly through raising funds by IPO activity.
Evaluation of performance
The initial public offering helps the companies in their growth and getting the funds for
various reasons. The Australian private equity Firm Anchorage capital partner cut their stake
from Dick smith to 20% from 98% through IPO (Mousa, Kim & Rutherford, 2016). The
performance of Dick smith after raising funds through IPO was to pay off their debt liability and
Illustration 2: ASX review of sharemarket floats
( Source : ASX review of sharemarket floats, 2019)

to transform the private into public trading company. The performance of the company through
the help of funds raised through IPO was impressive. The company have to face problems after
the 3 to 5 years of IPO activity because the firm was having the shortage of cash due to which
the firms was not having the enough working capital to perform its operations. The Veda group
have to face risk associated with the investment because there can be rise and fall on the share
price on ASX due to which the share can be traded above or below the offer price. Veda in the
first few weeks has traded well above the issue price. The first 8 months the downtrend was
faced by Veda from march to July but stock was still 47% above the issue price. It means the
share price performance of the Veda group is quite good for the business. Nine entertainment
corporation in the few weeks has traded below the issue price and then moved above issue price.
Dick smith share price subsequently fell away which shows the downtrend from the 2014. There
were many sellers of the company that wanted to exit from their position. The company faced
problems after the IPO activity which reduce their share price performance (Kothari, Mizik &
Roychowdhury, 2015). The share performance of Dick Smith is not good whereas the Veda
group with the help of IPO activity was able to improve their share price performance. The IPO
for the Dick smith was a Poor as it was not able to enhance their share price performance. The
Veda group raised the funds through IPO which shows the upward movement of the share prices
due to the float which is beneficial for the firm performance. The Nine entertainment company
was also having the good utilisation of the funds which are acquired through the IPO activity.
Impact of additional return the dividend yield shareholder received in the same period on share
performance
The company if provide the shareholders with the higher return on the shares than the
share performance will be affected because with the increase in the return the capital; of the
company will be reduced and thus the firm will have to face the reduction in their share price
performance. The share price performance of the Veda group will be affected with the addition
return received by the shareholder (Alhada, Clacher & Keasey, 2015). Dividend yield assist in
identifying the annual dividend per share by the earning per share. The share price is decreases
or increases due to dividend paid to the shareholders. Nine entertainment company will be
affected with the changes in the dividend paid to the shareholders during the same period. Thus,
the performance of the companies will be affected.

CONCLUSION
From the above assignment it has concluded about the initial public offering through the
which the private companies are able to convert into publicly traded companies by raising funds
through IPO. The IPo activity is cyclical because it occurs in the every period as many firms are
listed on the ASX for trading publicly through the IPO. The three IPO which are being
considered in this assignment consist of Dick smith, Veda group and Nine entertainment which
have raised the funds through IPO during the period 2007 to 2013. Moreover, it is analysed that
the share price performance of the company is affected after the IPO activity as the share [price
for some companies is reduced whereas for some it increases.

REFERENCES
Books and Journals
Alhadab, M., Clacher, I., & Keasey, K. (2015). Real and accrual earnings management and IPO
failure risk. Accounting and Business Research. 45(1). 55-92.
Kothari, S. P., Mizik, N., & Roychowdhury, S. (2015). Managing for the moment: The role of
earnings management via real activities versus accruals in SEO valuation. The
Accounting Review. 91(2). 559-586.
Mousa, F. T., Kim, S. K., & Rutherford, M. A. (2016). Top management team and IPO firms’
acquisition activity. Management Decision. 54(3). 664-682.
Zattoni, A. and et.al., (2017). Does board independence influence financial performance in IPO
firms? The moderating role of the national business system. Journal of World Business.
52(5). 628-639.
Ammer, M. A., & Ahmad-Zaluki, N. A. (2016). The effect of underwriter’s market share, spread
and management earnings forecasts bias and accuracy on underpricing of Malaysian
IPOs. International Journal of Managerial Financ. 12(3). 351-371.
Online
Share price performance after the public float. 2018. [Online]. Available through
:<https://www.robertbrain.com/share-market/ipo.html>
Taking stock: Deloitte Half-year 2018 IPO Report. 2018. [Online]. Available through
:<https://www2.deloitte.com/au/en/pages/finance/articles/deloitte-ipo-report.html>
Why Has IPO Underpricing Changed over Time?. 2017. [Online]. Available through
:<https://www.jstor.org/stable/3666262?seq=1#page_scan_tab_contents>
2017 IPO REPORT. 2017. [Online]. Available through :<https://www.onmarket.com.au/about-
us/blog/2017-annual-ipo-report/>