5 bad ASX IPOs that we think will bounce back…eventually

Nick Sundich Nick Sundich, November 21, 2023

Yesterday we looked at bad ASX IPOs (and some foreign ones too) that bounced back. The lesson we hoped investors would draw is that all hope is not lost when IPOs do not work out, there is still hope for the company, even if the odds are stacked against it. The 2020 and 2021 classes of IPOs have produced far more losers than winners, albeit companies that began as winners but became losers amidst the Tech and Biotech Bear Markets. Today, we thought we’d look at candidates from these classes that could get their heads above water in 2024…if things to go plan.

 

5 bad ASX IPOs that we think will bounce back

 

Australian Clinical Labs (ASX:ACL)

The newest ASX pathology company completed its IPO in May 2021, a time when revenues for all pathology stocks were inflated due to COVID-19 testing. This was never going to last forever, but plenty of investors thought to the contrary for a while. Investors have not received the overall decline in revenues well, even when non-COVID revenues were holding up. ACL has also been hindered by a hostile takeover attempt made at Healius (ASX:HLS), a deal that Helius has never embraced, nor has the ACCC.

Nonetheless, analysts covering the company expect solid share price growth in the coming year – with a mean price of $3.62 (a 37% premium) and estimates varying from $3.20 to $4. Although earnings are expected to be flat in FY24, growth is expected to resume in FY25 and FY26.

 

DGL (ASX:DGL)

DGL (ASX:DGL) is an end-to-end chemicals manufacturing, storage and disposal business operating across Australia and New Zealand. Investors sent the company as high as $4, quadruple its IPO price, as they liked how the company was founder-led and was growing solidly. Sadly, some eyebrow raising comments from the CEO led investors to see the growth was partly because of M&A activity, and it has been all downhill ever since. The company has also been impacted by inflation, its profit in FY23 was down 30% from the year before. 

However, the company has cut back on its M&A activity, possesses a strong balance sheet with $333.6m in net assets, has begun FY24 with strong trading (even though it has not been specific). The consensus share price is $1.17, up 44% from the current price. And revenues are expected to grow by 14% and EBITDA by 6%.

 

GQG Partners (ASX:GQG)

It seriously baffles us why this company, which was the biggest IPO of 2021, has not performed better. We get it, many fund management companies (led by Magellan) have seen rapid fund outflows due to poor performances. GQG however, has had nowhere near as bad a fate as many of its peers.

It is majority owned by its founder Rajiv Jain, has over US$100bn under management, low management fees and does not charge performance fees – so it is not facing a struggle to retain clients. It offers an 11% dividend yield, trades at less than 9x P/E for FY24 and the consensus price is a 45% premium to what it is trading at now.

 

Peter Warren Automotive (ASX:PWR)

Peter Warren is a used car seller, that completed its IPO in 2021. Selling cars has not been a good space to be in, given supply chain issues. The industry has taken a 180-degree U-turn ever since the world came out of pandemic hibernation, the first time the price of used cars ever increased.

Despite the state of the industry, this is a company that has been operating since 1958 – it has survived several economic cycles before. The consensus share price is $3.38, up 45% from the current price. And consensus estimates call for 13% sales growth and 2% earnings growth in FY24.

 

Universal Store (ASX:UNI)

Universal Store completed its IPO in November 2020 and is a casual fashion retailer. Now, this one may take a while, given its millennial/Gen Z customer base have been the worst hit by inflation. Nonetheless, we expect inflation to moderate in the coming 12 months and for younger consumers to start spending again. And Universal Store offers terrific value proposition for consumers.

Consensus estimates expect flat earnings but 8% revenue growth in FY24. But in FY25, 20% profit growth and 8% revenue growth. The consensus share price is $4.41, a 30% premium to the current share price.

 

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