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Market wrap: Latitude Financial's $3.2bn IPO failure

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After being snubbed by overseas institutional investors, Latitude Financials second attempt to list on the Australian Securities Exchange has failed.

While local investors were strongly in support of its initial public offering (IPO), you have to ask if institutions got it wrong.

There is an old saying that everything is for sale at a price, however, while I believed the asking price for Latitude's IPO was a little high, it seems the broader market also agreed.

Given this, Latitude dropped the asking price not long before it pulled the plug on the IPO altogether, as it was not supported by overseas institutions who, in my opinion, wrongly categorised Latitude as a bank.

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Latitude is profitable, and while it is more old school financing, it has a long history of trading and if it had floated it would have had a market capitalisation similar to Afterpay.

So while Latitude may not have reached the dizzying growth of Afterpay and Zip Pay, if it had floated it would have been a success for all investors.

While we will never know, I suspect the reason why institutional investors avoided this float might be something other than what we are being led to believe.

In my opinion, institutions were more concerned about having another short-term loan company listing on the exchange and how this might dilute demand for Afterpay and Zip Pay.

Having another company in this space would also most likely trigger a rebalance of portfolios, particularly given that Sezzle (SZL), a US buy now pay later company, only listed on the Australian exchange in late July.

Since listing almost 60 days ago on 30 July, Sezzle has really only traded sideways, and as of writing, it is slightly down on its initial opening price of $2.50.

Maybe Latitude's failure to launch was due to bad timing, wrong pricing, or something else we can only speculate about. What I would hope is that Latitude does attempt to relist, as it may just be third time lucky.

Looking at the sectors on the Australian market, it has been another interesting week. After starting the week strongly, the sectors are showing weakness following reports that unemployment has dropped, which has diluted the probability of another interest rate cut in November.

After being in the red the week prior, Energy was the strong performer up more than 3% while Healthcare and Consumer Discretionary rose more than 2%.

Once again, the Materials sector was the worst performer for the week down more than 2% given that BHP and RIO fell this week. Information Technology was also slightly in the red while Communication Services was in the green but only just.

Looking at the stocks in the ASX top 100, CYBG was once again the big mover for the week up nearly 20% so far. I urge investors not to get too excited about this stock, as it rebounding after huge falls, which could just be a sucker's rally.

Financial stocks, IOOF and Challenger, were also up more than 10%. The worst performers for the week include Northern Star Resources down more than 13%, Evolution Mining down more than 10% and Fortescue down more than 7%.

What to expect from the market

Despite all of the noise around global uncertainty our market has, once again, held up well, given that it rose strongly at the start of the week. That said, I still expect the market to pull back this month or early next month into the low I have been expecting.

While the market has risen for the past two weeks, if it is going to turn into the low, it will start to happen in the next week, so we should expect to see a short, sharp downturn in the last few days of October or in the first week of November as the market falls into the yearly low.

As I have mentioned previously, I am expecting it to fall to between 6400 and 6200 points before turning to rise up into 2020.

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Dale Gillham is chief analyst for Wealth Within (AFSL 226347). He has an Advanced Diploma and Diploma of Share Trading and Investment and more than 25 years' experience in the financial services industry.
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