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This ASX share was the best IPO of 2020: fundie

row of white eggs with cartoon sad faces with one gold egg with happy face and crown representing high performing asx share
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Initial public offerings (IPOs) were all the rage in the second half of this year.

But when every dog and his master are getting on the bandwagon, you’re bound to see a wide variety in substance.

“There was very high variability in the quality of new listings this year,” Prime Value portfolio manager Richard Ivers told The Motley Fool.

Some companies were clearly taking advantage of “a short-term boost” to the bottom line from the COVID-19 pandemic, he said.

“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.

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

So what was the best out of a motley crew?

The best of the good ones

Pengana Capital portfolio manager Chris Tan told The Motley Fool that Liberty Financial Group Pty Ltd (ASX: LFG) was the best new ASX listing in 2020.

The loan provider’s long track record as a private company gives Tan much confidence that it knows what it’s doing.

“LFG is a well-established company with a consistent history of profitability, unlike a lot of the latest IPOs. It was established in 1997 and has become a top 10 home lender in Australia,” he said.

“Surviving the GFC of 2008 is testament to its credentials in credit risk management. Its proprietary, tech-driven risk-based pricing model allows it to profitably write new business that larger players (eg the big 4 commercial banks) are often not able to.”

The Liberty IPO share price was not excessive, making it even more attractive.

“The IPO pricing was favourable at a P/E [ratio] of 11 times financial year 2021 earnings and a forecast 4% dividend yield.”

Liberty shares sold for $6 during the IPO and have bumped up to $7.90 in just two weeks since listing.

Aside from its already-strong residential loan business, Liberty still has plenty of untapped potential in other areas.

“It has growth opportunities in large addressable markets such as commercial, personal and motor loans,” said Tan.

To round out the case for Liberty shares, insider shareholdings have remained very high after the listing.

“The size of the IPO was limited with the founder group maintaining almost 80% of the shares on listing,” Tan said. 

“The main founder and shareholder [and executive director], Sherman Ma, is keeping his entire shareholding. As the most knowledgeable of insiders, when founders maintain large stakes a new investor can justifiably derive more confidence in a company’s future prospects than with a normal IPO.”

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Returns As of 6th October 2020

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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