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Chemical importer Redox (ASX:RDX) is listing on the ASX. It has raised $402m for a $1.34bn valuation, making it the biggest IPO since 2021.
Investors will watch this one closely not just because of the company’s size, but because it could lead to a revival in the ASX IPO market.
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Redox is a chemicals importer based out near Campbelltown in South Western Sydney. This company sells chemicals, ingredients and other raw materials to over 6,000 manufacturers.
It is the largest company of its kind in Australia with eight warehouses in Australia and operations in New Zealand, the USA and Malaysia.
Redox was founded in 1965 by Roland Coneliano and it has stayed in the family to this very day. On a CAGR basis it has grown sales at 11.9% annually.
The company has told investors to expect $1.33bn in revenue and a $97.4m profit in the next financial year, as well as to expect potential M&A going forward given that the industry is highly fragmented.
It intends to pay its first dividend in March next year from its 1HY24 profit and plans to pay 70% of its profit.
There’s little not to like about this business at first glance. Although costs are a risk, Redox is better able to absorb costs and negotiate good prices with suppliers because it is a market leader.
Nonetheless, as one of the few non-resources IPOs in 18 months it is anyone’s guess how it will go on opening day. But it will be watched closely.
Redox could kick off a new IPO boom
There have been extremely few IPOs since the end of 2021 and most of them have been duds.
High interest rates and inflation have made many non-resources stocks less compelling investments. It is bad for a company’s overall reputation if an IPO goes pear-shaped so private companies have sat on the sidelines.
The problem has been compounded by the fact that so many big-name companies have departed such as Sydney Airport, CIMIC, Crown, Oz Minerals and Tassal, with potentially more to come.
Redox’s listing should be good for the ASX so long as it does not flop on IPO. It will reinvigorate confidence in the ASX IPO market, the ASX more broadly and it may persuade other companies thinking about listing to pull the trigger.
In particular, Virgin Australia and Chemist Warehouse, which have both publicly declared interest in listing but have been waiting for more appropriate conditions.
Should I buy Redox?
With the offer now closed, investors wanting something will have to buy on market once the stock debuts on Monday.
In our view, you should only buy if you intend to hold for the long-term and not for a quick profit.
It is possible to make good profits from IPOs but they have all been made over multiple year periods – without exception.
Conversely, there have been some horrible IPOs and the failure has been compounded by investors riding them down to zero (or close to it).
Investors considering IPOs should do substantial due diligence including (but not limited to) reading the entire prospectus. We also recommend reading our article from earlier this year highlighting common IPO red flags.
Keep your eye on Redox
Even if you have no intention of buying, you should keep an eye on Redox when it first lists.
This is because it will go a long way towards determining whether there’ll be more IPO opportunities anytime soon.
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