Last year was a relatively quiet for initial public offerings (IPOs) on the Australian Securities Exchange (ASX), with $1.1 billion of IPO capital raised across 45 listings in 2023, compared to ASX’s five-year average of $5.4 billion raised and 120 listings a year.
It is often worth watching how a “float” performs, because sometimes, the market gives you a cheaper entry price, after some of the early enthusiasm wanes. Sometimes this can happen for good reasons; sometimes, the market, arguably, gets it wrong.
Here are two cases that I think look more like the latter than the former.
- Acusensus Limited (ACE, 63 cents)
Date of listing: 12 January 2023
Market capitalisation: $80 million
12-month total return: –6.5%
Estimated FY24 dividend yield: no dividend expected
Analysts’ consensus valuation: $1.30 (Stock Doctor/Refinitiv, one analyst)
Road safety technology company Acusensus floated in January 2023, raising $20 million at $4 a share, valuing the company at just over $100 million. Acusensus was founded in 2018 and went through the Melbourne University Accelerator, a start-up mentoring program at the university.
Acusensus is a unique business on the stock market: it is a technology company that designs and develops artificial intelligence (AI)-enabled road safety solutions. The company has designed, patented, and commercialised camera technology that detects distracted drivers who are illegally using mobile phones while driving – a problem the company says causes two in three road deaths, and represents a A$1.8 billion global market – and has expanded its technology offering to address other traffic areas such as speed, seatbelt usage and registration/number plate review, railway crossing compliance, and “smart freeway” compliance.
The Acusensus fixed cameras can operate at night and in almost all weather, capturing high-quality images as evidence for both enforcement and prosecution. Like other AI products, the Acusensus system “learns” from continuous feedback, helping the developers to improve and develop new models.
The shares struggled initially, falling to the equivalent of 60 cents in February 2023 (the company mounted a four-for-one share split in August last year, meaning the original $4.00 issue price became notionally $1.00). But the trajectory turned upward from there, and by February 2024, a buoyant result for the December 2023 half-year lifted AEE as high as $1.18.
That was on the back of underlying earnings in the first half of FY24 growing at a faster pace than revenue. Revenue rose 25%, to $24.7 million in the six months to the end of December, while earnings before interest, tax, depreciation, and amortisation (EBITDA) lifted 35%, to $2.5 million.
In January, the company announced an agreement with the South Australian government to roll-out its mobile-phone detection cameras on the state’s roads in a deal worth $5 million.
It was all looking good, particularly as the market was well aware that a couple of deals were cooking in the US and the UK, which are potentially large markets for Acusensus. Acusensus has built its business in Australia with long-term government contracts: all but 6% of its revenue comes from the Australian market, and much of the ‘story’ that the company tells is bound up with cracking the international market.
But two announcements in March hammered the share price of Acusensus, combining to wipe almost $65 million off the value of the company’s shares.
First, the company told the share market it had missed out on a tender for mobile phone enforcement camera services in western Europe. Then, the company failed to win a tender for a state-wide speed safety camera program for the Washington State Department of Transport in the US (WSDOT), after having announced in February that it had secured “apparent successful vendor” status for the planned contract.
In one bruising week, the shares fell 34% after the European news, and 17% on the back of the Washington State news.
Acusensus said the failures would not affect its FY24 forecast of revenue of between $49 million and $51 million (compared to $42 million in FY23) and EBITDA of between $4 million and $5 million (compared to $5.5 million in FY23). It also said that the US tender process had given it “valuable insight” into the US market.
The company is well-funded for growth, with cash reserves and term deposits totalling $19.8 million as at the end of March 2024.
The tender failures worried the market, but in the long term, I think a bit of faith should be shown in the ability of this world-leading technology to show its worth in the markets that Acusensus is trying to crack. The market dropping its bundle just might have given investors a cheaper way to enter this company’s growth story – albeit delayed.
- CLEO Diagnostics Limited (COV, 18 cents)
Date of listing: 22 August 2023
Market capitalisation: $36 million
12-month total return: n/a
Estimated FY24 dividend yield: no dividend expected
Analysts’ consensus valuation: n/a
Ovarian cancer diagnostics company CLEO Diagnostics is bringing to market a simple blood test for the accurate and early diagnosis of ovarian cancer, using its novel patented CXCL10 biomarker. CLEO’s first test, called AdnexaSure, is designed to distinguish benign from malignant growths, and to be better than the current global standard of care, which is a test that measures the amount of the protein CA 125 (cancer antigen 125) in the blood.
The new test – developed at the Hudson Institute of Medical Research at Monash University in Melbourne – takes blood and looks for a chemical ‘bio-marker,’ which the researchers believe can reliably differentiate a benign ovarian lump from a malignant one. Last year, CLEO received a US patent for the biomarker, adding to its Australian patent; further patent applications are presently pending in India, Korea, Japan, China, Singapore, New Zealand, Israel, and Europe.
The basis of CLEO’s confidence in its technology was set out in its second peer-reviewed dataset, which it announced in March had been published in the medical journal “Diagnostics.” This study concluded that CLEO’s test:
- Correctly identified most cancer cases that were missed by the standard
- marker CA125;
- Eliminated the majority of “false positive” results caused by CA125 use; and
- Correctly identified the majority of patients with early-stage ovarian cancers.
The company says this peer review process validates CLEO’s technology and commercial strategy, which is to target the surgical triage market, where accurate and early cancer identification is critical
CLEO’s triage test accurately re-assigned the majority of “missed” cancers that were incorrectly identified as low risk using CA125 and was effective in both pre- and post-menopausal patients.
False negative detections (i.e. a “missed” cancer case) were reduced by more than 70% for post-menopausal patients, and by about 54% for pre-menopausal patients, many of whom had early-stage disease. This is particularly important in the pre-surgical setting, where rapid identification and triage to a gynaecological oncology surgeon is critical to achieving the greatest benefit for patients. CLEO argues that its test will improve the initial clinical investigation process, helping clinicians to triage patients far more effectively than current methods.
So, now it’s on to clinical trials.
In April, CLEO announced a US clinical trial for the test; the study will recruit up to 500 patients and is aimed at verifying the performance of CLEO’s pre-surgical ovarian cancer test, for regulatory approval by the US Food & Drug Administration (FDA).
Comprehensive US patient data is essential for a successful regulatory application to the FDA. An Australian arm of the trial will also run concurrently; the dual-arm strategy mitigates risk to the timelines due to patient recruitment and will provide additional patient samples for kit verification following manufacture. CLEO has also begun the process of US market access and reimbursement program underway with the appointment of New York-based industry partner HcFocus.
The shares were issued at an offer price of 20 cents a share and hit the ASX screens in August 2023 at 23 cents, a 15% premium. The stock has been as low as 15 cents, but has recovered slightly, to 18 cents.
It’s an exciting Australian biotech story, and while companies at this stage of the trial process have to be considered highly speculative, right now CLEO is on sale for less than its IPO price, but with a bit more heft behind it, in terms of the second dataset. CLEO looks worth a punt for the investor who understands the risks of investing in early-stage life sciences situations, however promising.
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