Firmus Technologies’ failure to list on the Australian sharemarket has exposed a broader problem plaguing the ASX of loss-making companies flocking to the bourse despite a shocking track record of poor returns.
Broker MST Financial said on Monday that there were already 40 loss-making companies on the S&P/ASX 300 Index alone before the now collapsed initial public offering of Firmus, which had been valued at a massive $44 billion even though the data centre developer was yet to turn a profit and provided little visibility of when it would.
“Despite the failure of the Firmus IPO, Aussie shareholders are still being force-fed a steady stream of profitless companies,” MST’s senior analyst Hasan Tevfik told clients in a report. “The history of profitless companies in Australia has not been a great one for shareholders.”
He added that fund managers were right to exercise caution on Firmus and that retail investors, who would have piled in to the stock once it started trading, had dodged a bullet.
“The ASX 300 appears to attract more profitless companies than other indices around the world,” Tevfik said, citing more stringent index inclusion rules overseas. “Less mature, speculative companies can join the ASX 300 and compete for capital with world-class behemoths such as BHP.”
MST has been tracking a rolling basket of loss-making stocks on the ASX 300 since 2000 and over the last six months, the portfolio of so-called “birds without wings” has collapsed 35 per cent, while its long-term returns are not much better.
It showed that if a $100 model portfolio was to back the profitless companies since 2000, the book would be worth just 9¢ today after suffering annualised losses of 23 per cent.
Loss-making companies included in the ASX 300 range from technology stocks NextDC and Megaport to defence companies like Droneshield, Electro Optic Systems and Austal, and a flurry of miners including St Barbara and Minerals260.
The cohort expanded considerably at the sharemarket’s latest rebalance in September, when seven such companies were automatically added to the ASX 300 based on their market value.