Thursday, July 9, 2009

Kathmandu IPO: A tough Mountain to Climb

Buy a good company for top dollar a few years back, load it up with debt and try to flog it off in an IPO when the market the company operates in is crashing faster than a cheap hooker can get her knickers off, is your next thought where can I sign up?

There has been talk about an IPO for the outdoor retail chain Kathmandu over the last few days and various figures have been thrown around, including one reported in Stuff.co.nz from the Australian Financial Review (where this rumour was first reported) that puts the asking price at between $NZ 500-600 million dollars.

Considering that the company was sold off by founder Jan Cameron and other partners in 2006 for just over $NZ $500 million at the peak of its then earning power, in a retail market that was on fire, the rumoured asking price is way over the top especially when one considers these key points:

1. The dire condition of retail worldwide

2. Debt levels of $187 million VS assets of $331 million to July 2008

3. Profit down from $13.7 million to just under $9 million to July 2008

4. Interest costs for the year to July were $20.9 million, up from $18.2 million the year before.

5. A retail scene that is unlikely to recover soon.

These figures are a full year old and come before the massive decline in retail worldwide so we could assume that the company is now on the bones of its arse profit wise, with even more debt and almost twice the overheads the company had back in 2006 because store numbers have almost doubled.

One big drawback is that the company possibly selling Kathmandu, Goldman Sachs and Quadrant Private Equity, is missing one vital key to the retailer's success, Jan Cameron herself.

Jan got out of her company at the right time, for a great price and has used the proceeds of that sale to buy beaten down retail stocks like Pumpkin Patch Ltd [PPL.NZ], Postie Plus Group [PPG.NZ] and kick off a number of brand new start up retailers like her Nood Homewares business and Dog's Breakfast.

A good exit by Jan, and a bad possible re-entry by Kathmandu.

To be avoided.

Disclosure: I own PPG, PPL shares


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