Analyzing Australian IPOs: A Managing Finance Perspective

This report analyzes the performance of Initial Public Offerings (IPOs) in Australia, focusing on those conducted in 2013. It examines the measures taken by management with IPO capital, gauging changes in the cost of equity after share issues, and discussing the implications of underpricing across various industries. The analysis includes data from Meridian Energy, Ozforex, and Virtus Health, detailing their IPO amounts, offer prices, and first-day trading returns. The report further scrutinizes the changes in Australian IPOs from 2007 to 2017, linking the returns of the Australian index with the 5-year performance of the IPOs, both with and without dividends. The findings reveal the impact of the global financial crisis, fluctuations in IPO activity, and the varying returns generated by different IPOs compared to the All Ordinaries Index. The report concludes by highlighting the overall financial performance and the impact of dividends on the returns.

Running head: MANAGING FINANCE
Managing Finance
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Introduction:...............................................................................................................................2
a. Analysing the IPOs that were indicated in Australia, while detecting the measure taken by
the management with the IPO capital:.......................................................................................2
b. Gauging the Change in cost of equity of the IPO after acquiring the required funds from
the share issue:...........................................................................................................................4
c. Disparagingly discussing about the implication of the under-pricing, while stating how
every industry is effected from it:..............................................................................................5
d. Scrutinizing the change in IPOs of Australia from 2007 to 2017:.........................................6
e. Linking returns of Australian index with the 5 years performance of the IPO:.....................7
f. Linking returns of Australian index with the 5 years performance of the IPO with dividends
....................................................................................................................................................8
Conclusion:..............................................................................................................................10
References:...............................................................................................................................11

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Introduction:
The aim of the assessment is to identify relevant significance of initial public offering
that is conducted in Australia. Furthermore, relevant information is provided regarding the
three different initial public offerings that are conducted in Australia during financial years of
2013. Initial public offering is a relevant risky Endeavour, which is conducted by investors to
increase their overall look to the long run. One of the major initial public offering that is
conducted in Australia was JB hi fi, which relatively allowed the investors to gain more than
thousand percent in returns from its initial public offer. The surprise performance of the
initial public offerings of three companies are relatively conducted the assessment to identify
whether investors could gain higher returns while conducting investments during the
initiation stage.
a. Analysing the IPOs that were indicated in Australia, while detecting the measure
taken by the management with the IPO capital:
Compa
ny
Name
Industr
y
Date
of
IPO
Amount
intended to
raise
Amount
actually
raised The purpose of the funds
Meridia
n
Energy Utilities
Dec-
13 1129.0 $1129m
The organization needs
access to capital markets
and
commercial independence
in the form of greater
external
oversight and transparency,
increasing the incentive for
improved performance.
Ozforex
Diversi
fied
financia
l
Jun-
13 439.4 $439.4m
Paying dividend to the
existing share holder and
increasing capital
management flexibility
Virtus
Health
Healthc
are
Equipm
ent
Oct-
13 346.5 $346.5m
Funds to repay, in part,
existing debts of Virtus’
business and additional
financial flexibility to

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pursue the growth
opportunities
Compa
ny Industry
Date
of
IPO
Amount
Raised
Offer
price
Closing price on
first day of
trading
Return on first
day of trading
Meridia
n
Energy Utilities
Oct-
13 $1129m 1.8 0.872 -51.56%
Ozforex
Diversified
financial
Oct-
13
$439.4
m 2 2.56 28.00%
Virtus
Health
Healthcare
Equipment
Jun-
13
$346.5
m 5.68 6.28 10.56%
The details of the initial public offering of Meridian energy are a relatively conducted
in the above table, which is used for identifying the relevant information about the share
issue. The company intended generate overall 1,129 million from the share issue, where it
provided offer price of $1.18 (Asx.com.au, 2019). However, during the first day of trade the
overall value of the share price fell by -51.56%, which indicated that the closing price for the
share during the first day of trade was 0.872. The company initiated the public offering on
October 2013, as it required the relevant funds to support its overall operations. Moreover,
the organization gathered the relevant capital from the equity market to support its
commercial independency, while increasing the external oversight and transparency in their
performance. The main aim of the organization was to boost their financial capital
and improve their performance.
The second initial public offering that is analyzed is Ozforex, which is situated in
diversified financial industry. The management aimed to acquire 439.4 million. From the
relevant share issue where the total offer price of the shares was at the levels of $2.The first
day closing price of was relatively at the levels of $2.56, which is 28% higher than the initial
offer price that was made by the organization (Asx.com.au, 2019). The company initiated the

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public offering to increase the Capital Management flexibility, while paying relevant
dividends to the existing shareholders.
The shares of Virtus Health are analyzed, where the management issued the relevant
shares during June of 2013 with an offer price of $5.68. Moreover, the first day trading close
price was at the levels of 6.28, which is 10.56% higher than the initial offer price. Moreover,
the company was able to acquire the capital of $346.5 million from the share price issue
(Asx.com.au, 2019). In addition, the share issue was conducted to support the repayment of
existing debt, increasing the financial flexibility of the company and raise the growth
opportunities.
b. Gauging the Change in cost of equity of the IPO after acquiring the required funds
from the share issue:
Particular
s Meridian Energy
Ozforex Virtus Health
G 10.0% 10.0% 10.2362%
P0 0.813 3.3 8.1600
D1 0.0786 0.0104 0.7000
Ke 19.7% 10.3% 18.8147%
The above table provides information about overall changes in equity for the three
IPOs, after the completion of the share issue. From the relevant calculation, it could be
identified that the overall cost of equity of the organization has a relatively increased to new
levels. However, the cost of equity of the companies was relatively nil before the initiation of
the share issue, which directly indicates that before the IPO cost of equity of the organization
was at the levels of 0. Moreover, after the public offering the overall cost of equity of the
organization altered with the change in the dividends offered by the management. The overall
cost of equity of Meridian energy relatively increased to the levels of 19.7%, is the overall

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dividend in comparison to the share price was relatively higher. the in the similar instance the
overall dividend of Virtus health has relatively increased to the levels of 18.8147% due to the
high level of dividends provided by the organization. Nevertheless, the cost of equity of
Ozforex is relevantly lower than the IPOs, as the total dividends paid by the company are
lower in comparison to other organization (Hartnett & Shamsuddin, 2017).
c. Disparagingly discussing about the implication of the under-pricing, while stating
how every industry is effected from it:
The presence of underpricing of any public offering is considered to be relevant
problematic conditions for the organization. Underpricing relatively reduces the total offer
Price of the organization, which is issued by the management to ensure the acquisition of
adequate equity capital. The enterprising activity is relatively present in all the industries and
market, as a relevant study was conducted in United States regarding the presence of
Underpricing during initiation of an IPO. The research directly analyzed more than 8000
initial public offering that were conducted in United States in different industries and sectors.
This analysis has a relatively indicated that the underpricing of a new company is a relatively
evident, as it allows the investors to increase the returns from investment. Moreover,
companies encourage and uprising of their shares as it allows them to complete the share
issue process without any kind of hindrance. Moreover, underpricing is considered to be an
adequate measure taken by the company to lure in more investors. Hence, from the valuation
it is detected that in United States the IPOs offer prices reduced by 18% due to the presence
of underpricing. In the similar instance, the IPOs offer price in Australia is also reduced by
the levels of 16.6%. Hence, it could be identified that underpricing is a major event that
occurs in all sectors and industries around the world (Garanina & Dumay, 2017).

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d. Scrutinizing the change in IPOs of Australia from 2007 to 2017:
Year
2007 Year
2008 Year
2009 Year
2010 Year
2011 Year
2012 Year
2013 Year
2014 Year
2015 Year
2016 Year
2017
0.00
50.00
100.00
150.00
200.00
250.00
300.00
260.00
75.00
42.00
99.00 105.00
51.00 61.00 73.00
97.00 94.00
115.00
Change in IPO Acti vity
Year
2007 Year
2008 Year
2009 Year
2010 Year
2011 Year
2012 Year
2013 Year
2014 Year
2015 Year
2016 Year
2017
-100.00%
-50.00%
0.00%
50.00%
100.00%
150.00%
41.30%
-71.15%
-44.00%
135.71%
6.06%
-51.43%
19.61% 19.67%
32.88%
-3.09%
22.34%
Percentage change in IPO Acti vity
Year IPO (Activity) IPO Activity (Percentage change in)
Year
2007 260.00 41.30%
Year 75.00 -71.15%

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2008
Year
2009 42.00 -44.00%
Year
2010 99.00 135.71%
Year
2011 105.00 6.06%
Year
2012 51.00 -51.43%
Year
2013 61.00 19.61%
Year
2014 73.00 19.67%
Year
2015 97.00 32.88%
Year
2016 94.00 -3.09%
Year
2017 115.00 22.34%
The calculations portrayed in the above table directly provide information about the
IPO activity that is conducted in Australia from 2007 to 2017. The graph provides
information about the change in percentage of the IPO activity during the period of 10 years.
From the relevant analysis to be identified that the IPO activity of the organization relatively
decline during 2008 due to the presence of global financial crisis, which deteriorated the
economic conditions of Australia. During the financial years of 2009 to 2012 the fluctuations
in IPO activity was witnessed due to the changing economic conditions of Australia. There
were relevant Global factors that played the major part in the alteration of the economic
conditions Australia. Moreover, from 2012 there is a stable growth in IPO activity, which can
be seen from the overall graph. This directly indicates that the initial public offering that is
conducted by organization is relatively during an up-trend in the economy as it allows them
to gather the required capital to support it operations (Chen et al., 2017).

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e. Linking returns of Australian index with the 5 years performance of the IPO:
Share price performance of IPOs and Market Index
Meridian
Energy Share price Return All Ordinaries Index Return
2013 0.8130 5353.0800
2014 1.5210 87.1% 5388.1400 0.7%
2015 2.0520 34.9% 5344.6000 -0.8%
2016 2.3720 15.6% 5719.1400 7.0%
2017 2.6320 11.0% 6167.2000 7.8%
Growth rate 148.6% 14.7%
Ozforex Share price Return All Ordinaries Index Return
2013 2.7800 5353.0800
2014 2.8500 2.5% 5388.1400 0.7%
2015 3.2800 15.1% 5344.6000 -0.8%
2016 1.6800 -48.8% 5719.1400 7.0%
2017 1.4200 -15.5% 6167.2000 7.8%
Growth rate -46.7% 14.7%
Virtus Health Share price Return All Ordinaries Index Return
2013 8.82 5353.0800
2014 7.81 -11.5% 5388.1400 0.7%
2015 6.50 -16.8% 5344.6000 -0.8%
2016 6.24 -4.0% 5719.1400 7.0%
2017 5.26 -15.7% 6167.2000 7.8%
Growth rate -47.9% 14.7%
The above table provides relevant information about the returns that was provided by
the three IPOs during the financial years of 2013 to 2017. From the calculation, it is detected
that the highest return was provided by Meridian energy over the period of 5 years, which
was at the levels of 148.6%. The returns of the organization was higher in comparison to the
all ordinary index, which states that the organization was providing more returns to the
investors in comparison to the Australian index. However, the other two IPOs provided
negative returns of -46.7% for Ozforex and -47.9% for Virtus Health. Therefore it could be
identified that only one of the IPOs possible to generate exponential Returns in comparison to
the All Ordinary Index.

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f. Linking returns of Australian index with the 5 years performance of the IPO with
dividends
Share price performance of IPOs and Market Index after adding the dividends
Meridian
Energy Share price Dividend Return All Ordinaries Index Return
2013 0.8130 5353.0800
2014 1.5210 0.0786 96.8% 5388.1400 0.7%
2015 2.0520 0.123 43.0% 5344.6000 -0.8%
2016 2.3720 0.1622 23.5% 5719.1400 7.0%
2017 2.6320 0.1647 17.9% 6167.2000 7.8%
Growth rate 181.2% 14.7%
Ozforex Share price Dividend Return All Ordinaries Index Return
2013 2.7800 5353.0800
2014 2.8500 0.0587 4.6% 5388.1400 0.7%
2015 3.2800 0.0718 17.6% 5344.6000 -0.8%
2016 1.6800 0.059 -47.0% 5719.1400 7.0%
2017 1.4200 0.053 -12.3% 6167.2000 7.8%
Growth rate -37.1% 14.7%
Virtus Health Share price Dividend Return All Ordinaries Index Return
2013 8.8200 5353.0800
2014 7.8100 0.26 -8.5% 5388.1400 0.7%
2015 6.5000 0.27 -13.3% 5344.6000 -0.8%
2016 6.2400 0.29 0.5% 5719.1400 7.0%
2017 5.2600 0.25 -11.7% 6167.2000 7.8%
Growth rate -33.1% 14.7%
The above table provides information about the overall returns of the organization
after adding the dividend declared during the period of 5 years. From the relevant
calculations, it could be identified that only Meridian energy was able to provide the highest
returns after adding the difference where the overall returns increased from the levels of
148.6% to 181.2%. The high increment in returns caused due to the overall growth in share
price and dividend that was provided by the company during the previous five financial
years. However, the dividends that were provided by Ozforex and Virtus Health were not
relatable enough to compensate the losses in share value, which is incurred during the past 5
years. Furthermore, both the companies incurred a loss of -37.1% for Ozforex and -33.1% for

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Virtus Health during the past financial year of 2013 to 2017. Hence, both Ozforex and Virtus
Health were not able to beat the market.
Conclusion:
The above assessment directly evaluates financial position of the three IPOs initiated
during the financial year of 2013. This analysis has directly indicated that only Meridian
energy was able to generate higher returns from investment while both Ozforex and Virtus
Health lost share value in comparison to their offering price. Relevant analysis has been
conducted on the initial public offering activity of Australia, which is relatively compared
with Economic conditions. From the analysis, it could be identified that with the increment in
economic movement the overall IPO activity increases. Hence, there is a positive correlation
between economic conditions and IPO activity. Lastly, relevant analysis on the underpricing
activity is conducted identifying its presence in all the relevant industries in all around the
world.

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References:
Asx.com.au. (2019). Asx.com.au. Retrieved 08 May 2019, from https://www.asx.com.au/
Chen, Y., Wang, S. S., Tong, W. H., & Zhu, H. (2017). Economic freedom and IPO
underpricing. Frontiers of Business Research in China, 11(1), 20.
Garanina, T., & Dumay, J. (2017). Forward-looking intellectual capital disclosure in IPOs:
implications for intellectual capital and integrated reporting. Journal of Intellectual
Capital, 18(1), 128-148.
Handa, R., & Singh, B. (2017). Performance of Indian IPOs: An Empirical Analysis. Global
Business Review, 18(3), 734-749.
Hartnett, N. A., & Shamsuddin, A. (2017). Initial public offer pricing, corporate governance
and contextual relevance: Australian evidence. Accounting & Finance.