Record-Breaking Debutant Joins Australia Benchmark as Laggard

Security software firm Nuix Pty.’s stock joined Australia’s benchmark S&P/ASX 200 Index on Monday. The achievement came with a dubious distinction: it started as this year’s worst performer on the gauge.

Hurt by disappointing half-year results and a wider global rotation out of technology names, the stock has plunged 38% so far in 2021. Not so long ago, in December, Nuix grabbed investors’ attention with a record-breaking surge on its trading debut following what was Australia’s biggest initial public offering of 2020.

“With Nuix coming in at an index weight of around 0.06%, the stock performance will not have a huge impact on the ASX 200,” said Brian Freitas, a New Zealand-based analyst at Smartkarma. Still, passive investors that track the index will have to buy Nuix, which “will support the stock price, reduce the floating stock and get wider institutional recognition for Nuix.”

Record-Breaking Debutant Joins Australia Benchmark as Laggard

Nuix’s shares dropped below their IPO price of A$5.31 ($4.10) earlier this month as the company in late February reported A$85.3 million in revenue for the first half, down 4% from the prior corresponding period, and accounting for 44% of its full-year target. Nuix said back then that it expects to meet its guidance for the year.

‘Too Severe’

Nuix shares have also been added to the S&P/ASX 300 Index, All Ordinaries Index and the S&P/ASX All Technology Index. Those betting on a revival will be watching management’s commentary on the outlook, the extent of passive demand from index inclusions and the impact that rising bond yields have on the broader technology sector. The stock ended 3.4% lower on Monday even as the benchmark index climbed 0.7%.

“With the stock trading 50% lower from its high a couple of months ago (post weak 1H results), active investors could also look to buy,” said Freitas.

Morgan Stanley, which was a joint lead manager on Nuix’s offering, rates the stock overweight and has a price target of A$10.75. That implies a 109% potential upside based on Monday’s close.

Nuix’s interim results were a miss versus expectations, and thus the risk profile surrounding full-year earnings delivery has increased, according to a Morgan Stanley report last month. Even so, the stock’s post-result plunge “is too severe,” the report said.

Stocks such as Pilbara Minerals Ltd. and Codan Ltd. are also among the six new additions to Australia’s equity benchmark, while Bravura Solutions Ltd. and GWA Group Ltd. are among the deletions.

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