Plenty of action in the ASX tech sector
It’s been a lively period for tech stocks on the ASX, with a number of IPO’s put on hold, prominent short attacks, and the emergence of contrasting views on the direction of Fintech. Peter Hynd, Partner at North Ridge Partners weighs in on the tech stocks on the ASX:
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October saw a clutch of sizeable ASX IPOs put on ice, with Latitude Financial ($3.2bn) the most prominent. It was joined by South East Asia-focused online real estate company, PropertyGuru (looking to raise ~$330m), as well as a range of non-tech offerings … energy sector services provider MPC Kinetic ($230m), equipment rental company Onsite Rentals ($250m), Retail Zoo (owner of Boost Juice) and international education provider Education Centres of Australia.
The value of ASX IPOs is now tracking to its lowest yearly level since 2012 … reflecting the poor lead from overseas markets (think WeWork, Uber, Peloton), continuing trade uncertainty and of course the more micro factors associated with the offers themselves – caution at PE divestments and some arguably fulsome valuations.
While the ASX itself is up 14% over the last 12 months, it is clear that the IPO market is stuck in neutral for now.
At the same time, prominent ASX-listed logistics software company, WiseTech, was the latest company to face the blowtorch of a short attack. Beijing-based short seller J Capital Research published a report alleging WiseTech had exaggerated profits and revenue and that bolt-on acquisitions were performing poorly. Two trading halts ensued as WiseTech scrambled to refute the claims put forward. So where did things fall out – the stock is currently down ~20% from levels prior to the J Capital report, although there is a good argument that the report has simply caused investors to reflect more generally on the relatively demanding valuation multiples, than any truth in the specific allegations.
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Finally – buy now, pay later darling Afterpay has been the subject of widely varying views on its current valuation and ability to sustain its growth trajectory. UBS is sitting in the bear camp with a target of $17.25 (37% below current levels) as it questioned the company’s ability to export growth to the US and some potentially negative regulatory moves in Australia. Morgan Stanley has taken the bull position with a target of $44 (up 61% on current) based on a far more positive assumption of execution in the US. As with most of the emerging ASX fintechs, there are very sizeable markets to play for (taking from the big banks or meeting previously unbanked needs in Australia, plus overseas markets), but bullish valuation multiples and possible regulation changes mean our fintechs are priced for high quality execution.
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The ‘emerging fintech’ cohort (Afterpay, Zip, Splitit, Wisr, Prospa) has taken a well-publicised pricing dip in recent months, with all but Prospa down 30-40% from previous highs. That being said, this still represents a relatively modest correction to long run gains with 12-month returns vastly exceeding the broader market and valuation metrics remaining very strong.
Peter Hynd - Cofounder and Partner - North Ridge Partners