Australian IPO Investors Split Between High-growth Tech And Dividend-yielding Coal

Australia’s two biggest share listings this year will highlight a polarised investment landscape: the strong, expanding allure of high-growth technology, versus entrenched demand for coal-linked assets that offer a steady stream of high dividends.

Canada’s Brookfield Asset Management will early next month offer investors a coal terminal in Queensland that, according to Credit Suisse analysts, could be valued at up to A$3.5 billion ($2.5 billion). The deal promises a dividend yield of more than 5.5% and will likely be Australia’s biggest initial public offering (IPO) in about two years.

Soon after, Macquarie Group plans to target the opposite end of the investment spectrum with a stake in a technology firm that offers the potential for capital gains.

At first glance Macquarie’s Nuix, which sells software to analyse unstructured data and is valued at about A$2 billion, looks to be the pick of the two: in the past two years it has boosted sales at average compound rates of over 15%.

But even as concerns about carbon dioxide emissions and climate change exert growing influence on investment decisions, healthy demand is expected for Brookfield’s Dalrymple Bay Coal Terminal (DBCT), with the dividend a particular lure for retail investors.

“The world has become quite barbelled,” said Jun Bei Lui, portfolio manager at Tribeca Investment Partners, referring to the bifurcation in investment landscapes. “Everybody is paying for growth and yet there’s no dividends around, so I think (the DBCT dividend) will appeal to the other end.”

DBCT exports mostly metallurgical coal, an essential but carbon-intensive ingredient in steelmaking. Steel companies are testing processes to replace metallurgical coal with green hydrogen, but no such alternative exists currently.

It will change its name to Dalrymple Bay Infrastructure for the listing, according to a Credit Suisse note, as the company seeks to position itself as an infrastructure play, disassociating its brand from coal.

DCBT has declined to comment on matters relating to the IPO.

Deep freeze ends

Like many aspects of the global economy, Australia’s IPO market ground to a halt due to the coronavirus crisis, but a surge of tech IPOs globally has helped kickstart listings of domestic small and mid-sized e-commerce and tech-related firms.

Australia’s equity market.AXJO has jumped 38% from a COVID-induced trough in March, fuelled by central bank liquidity and near-zero interest rates, and led by technology stocks such as payments operator Afterpay, which has surged more than elevenfold.

This bodes well for Nuix. If market volatility subsides, it could attract enough investors to pay multiples between 10 and 15 times its revenue, the level fetched by bigger American rival Palantir Technologies which listed this month despite not returning a profit in 17 years.

“Since the COVID correction, some of the more speculative sectors in Australia are doing best, that’s where the hot money has been, but there’s also demand for long-term income streams,” said Anton Tagliaferro, investment director at Investors Mutual Ltd.

Asked if he planned to buy DBCT shares, Tagliaferro said he believed met coal will continue to be used around the world for many years, “so we think something like DBCT could still be a suitable investment”.

Reuters