Miners and oil and gas companies are expected to make a comeback on the junior flotation market in 2017, but realistic pricing and high quality prospects will be critical to their success, new research suggests.
A much improved initial public offering (IPO) market is expected for industrials firms as commodity prices continue to rise, Alternative Investment Market (Aim) broker FinnCap found in its IPO white paper.
FinnCap, which is the junior market's largest broker, conducted research on Aim IPOs over the 21 years since the market's inception and made predictions for what sectors would pull ahead over the next year.
Industrials are seen having their day this year following a strong price recovery by the mid- to large-cap miners in 2016.
By the end of 2016, iron ore prices had doubled from their January 2016 lows while other base metal prices like zinc also climbed, up nearly 70 per cent by December.
"We expect 2017 will see some of the profits rotated into the more attractive growth investment opportunities coming through, this includes some genuine mineral explorers," the report said.
However, there are still many inexpensive investment opportunities amongst the existing mineral producers, so realistic pricing and high quality prospects will be critical to success.
Quality gas and oil projects offer proven resource upside and development potential, FinnCap found.
"We also expect appetite from investors for pure exploration could return as costs in the sector are at cyclical lows, and companies offering a portfolio of well opportunities particularly with industry partner validation will be well received, of which there are a number currently private."
Despite disruption following the referendum, many industrial players ended up benefiting from the weakened pound. Companies with overseas subsidiaries or export materials saw positive change.
Van Elle, a geotechnical contractor was one of the top Aim IPOs of 2016, according to FinnCap. The business floated in October after raising £40m, and upon entry the market cap was £80m.
When it first launched on Aim the company sold 30m existing shares and added in 10m new shares at 100p. Since floating, FinnCap said shares had risen 30 per cent to 130p.
Chairman of Van Elle, Michael Ellis said, “There is significant opportunity ahead and admission to trading on Aim will help us accelerate the growth of the business.”
Out of 58 new entrants and re-admissions in 2016, five were in the oil and gas industries and seven were in industrials. They raised £194m and £68.3m over the year, respectively.
Other industries that should be expecting increased Aim listings include infrastructure, financials and technology.