Experts pick the best ASX IPO of 2020

Three fund managers tell us the newly listed stock they think has the best chance of sustainable long-term returns.

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It was an odd year. 

The share market crashed in late February and March due to a virus pandemic. But later in the same year, we saw private companies climbing over each other to list on the ASX.

While COVID-19 still rages on, rightly or wrongly the share market long ago moved on. The S&P/ASX 200 Index (ASX: XJO) has climbed a stunning 45% since the March trough.

That rapid recovery spurred on private companies to finally take the leap and take the public cash on offer.

The final quarter of 2020, especially, saw some big names pull off their initial public offerings.

As of 22 December, the best-performed listing this year is Douugh Ltd (ASX: DOU)

Its IPO share price was 3 cents, but is now trading at 17 cents — a 466% increase. It was as high as 49 cents last month.

But just because a new stock climbs spectacularly in the first couple of months doesn’t necessarily mean it is the best for holding. Picking a newly listed ASX share for the medium to long run is a more complicated science. 

So for that The Motley Fool asked 3 experts:

Tribeca Investment Partners’ Jun Bei Liu

Tribeca Investment Partners’ Alpha Plus portfolio manager Jun Bei Liu agreed not all stocks that double their value on the first day are long-term winners.

“Our view of a successful listing not only includes strong price performance on day one but also broad based investor support following the listing to create sustained outperformance,” she told The Motley Fool.

Nuix Ltd (ASX: NXL) would absolutely fall into this category.”

Liu believes the analytics software company has “a long runway of sustained growth”. 

“This company has attracted long-term quality investors to its register and will underpin its outperformance.”

Nuix sold for $5.31 per share during its IPO but is now trading at $8.16 as of Tuesday afternoon. That’s already a 53.6% climb in just 2.5 weeks.

Cyan Investment’s Dean Fergie

Cyan Investment Management director Dean Fergie told The Motley Fool he’s “excited” about a stock that only listed last Wednesday.

Playside Studios (ASX: PLY) is a profitable Melbourne based game developer that has seen strong revenue growth in recent years,” he said.

“Playside develops both its own games and partners with movie studios like Walt Disney Co (NYSE: DIS), Pixar and Universal Studios to develop branded gaming content.”

Two revenue streams mitigate risk, according to Fergie.

“Given the massive growth in the global gaming industry and Playside’s established positioning and strong commercial ties with multinational media companies, we believe 2021 could be a huge year for the company.”

Playside’s IPO price was 20 cents but is trading Tuesday afternoon at 32 cents. That’s a tidy 60% gain in less than a week.

Prime Value’s Richard Ivers

Prime Value portfolio manager Richard Ivers also picked Nuix as the “highlight IPO” of the year.

“It’s in a high growth market, with quality customers that are very sticky,” he told The Motley Fool.

“We expect strong revenue growth and margin expansion which will drive earnings significantly higher in future years.”

There was “very high variability” in the quality of IPOs in 2020, according to Ivers.

“Some [were] taking advantage of a short term boost to profits from COVID. With the market placing high valuation multiples on some of these sectors, they got the double benefit of high valuation multiples on cyclically high profits,” he said.

“Others were high quality businesses with a solid long term outlook.”

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Returns as of 15th February 2021

Tony Yoo owns shares of Nuix Pty Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Walt Disney and recommends the following options: short January 2021 $135 calls on Walt Disney and long January 2021 $60 calls on Walt Disney. The Motley Fool Australia has recommended Walt Disney. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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