DNZ Property IPO: It stinks

In an ideal world Initial Public Offerings (IPO) are a means of raising capital from the public to enable the company getting the proceeds of such an IPO to use it to grow and prosper into the future. The DNZ Property Ltd [DNZ.NZX] IPO (see DNZ Prospectus)that kicked off earlier this week is certainly one for either the blind, stupid or both or a broker if you haven't sold your allocation to the aforementioned and is far from ideal, in fact it has the rear-end smell of failure written all over it and you dont even have to glance at the glossy, expensive prospectus to get the full stench.

It wouldn't be so bad if the funds raised in the IPO were going back into the business but the big bad, bogeyman up front is that the $35-40 million raised will be going to two overstuffed suits to buy out their management contact.

As the basis for an IPO this has got to be one of the worst reasons to raise cash.

Even if the underlying company was worth you investing your hard earned, can you really trust management of a company and its directors that would allow two individuals to walk away with this much money without doing anything for it?

What kind of agreement was drawn up that this kind of money would be needed to buy out a contract like this of such a small business!!

With these kind of backroom deals going on you know you cant trust management at DNZ Property, now, or in the future - the business is very badly managed.

The big winner will be the brokers, they always are with these kind of turkey IPOs, but I suspect that the small investor like me will be avoiding this stinker like the plague. It will be pushed by your broker because they will get a commission to sell it to you but all you have to say is no I would rather set my money on fire than hand it over to DNZ.

It is sad that this, the highly risky Ecoya Ltd [ECO.NZ] and the heavily debt laden Kathmandu Holdings Ltd [KMD.NZ] IPOs have been the only three calls to the market for capital over the last year or so. The DNZ IPO just took IPOs in NZ to a new low.

Ecoya is at least well managed, Kathmandu has at least a good brand but DNZ is simply a shitty, cynical, little attempt to feather-bed two individuals pockets for doing sweet fanny adams.

No wonder the NZX is performing badly and small investors continue to buy houses instead of shares.

In case you are wondering where I stand, I am of the opinion that the DNZ Property IPO is excrement in the true sense of the word.

STAY AWAY.

Related

DNZ Prospectus
About DNZ

Discuss DNZ @ Share Investor Forum


From Fishpond.co.nz



Buy Every Bastard Says No - The 42 Below Story, by Geoff Ross & Justine Troy & more @ Fishpond.co.nz





c Share Investor 2010

Burger Fuel slims down in value

A quick note to inform readers of the fortunes of the recently listed Gourmet burger maker, Burger Fuel(BFW)

Listed at NZ$1 a few months back the share price continues to climb, in a southerly direction today, to a new post float low of 60c.

No comment today by management that they will be giving away shares with every fat bastard burger meal but analysts have speculated that owners who bought in the float will be able to buy a fat bastard meal without getting change with their minimum purchase of 1000 shares should they redeem them at a store near them. A twist on Burger Fuel's IPO tag line "do you want shares with that?"

The offer would be tempting considering how delicious a fat bastard is but a share price recovery could be an appetizing reason to hold the bun and fries.

That recovery seems as likely to happen as OJ being indited for armed robbery though.

Sad to see this disaster continue to develop like a train wreck in slow motion but what is happening now is as obvious as Paris Hilton's dearth of intellectual banter.

I will keep you posted when the share price hits my target of sub 20c.




Burger Fuel Worldwide @ Share Investor


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Discuss BFW @ Share Investor Forum - Register free





c Share Investor 2007 

IPO Quality indicative of poor economy

The poor number of IPO's listed on the New Zealand Stock Exchange in 2007 reflect the lack of confidence that the business sector and therefore market investors have in the NZ economy.

This is a good indicator of where our economy might be going, considering share markets usually anticipate real economic factors months before they happen.

Michael Cullen's tax, spend and welfare splurge has finally come home to roost. His huge taxpayer funded surplus has meant Kiwis have used credit to buy consumer goods instead of the cash that is theirs and the Labour Government's contribution to the current finance company mess must be stated clearly.

The quality of some IPO's listed this year have left investors a little bit cold. Xero [XRO.NZ] the software company listed at over NZ$1 and now languish at around 70c, Burger Fuel International [BFW.NZ] listed at $1 and are currently getting grilled at .70c (up 5c today!!!) Pike River Coal [PRC.NZ] , the biggest IPO this year started trading at $1 and is now selling at just above 80c.

We have had several prospective IPOs canceled this year because of investor nervousness. One of them, AMP's listing of their Summerset Retirement Village unit has been canned but ING's Retirement unit will still be listed later this year, even though some of its directors have been involved in major business failures and losses for investors in the past.

The New Zealand share market is lacking a big IPO that would possibly kick off a new wave of investing. One remote possibility would be this countries biggest company, the Dairy giant Fonterra. There has been talk around the traps from time to time about this happening but nothing concrete or with any substance as yet.

It would make perfect sense to list Fonterra, especially now as the Dairy business is doing historically well, more investment is needed to increase capacity and listing would allow farmers to free up capital more easily than currently and using the proceeds to reinvest in their business, pay back debt or buy that new Holden or Ford.

IPO's can be a good indicator of how well the business community sees the economy going. The dearth of good ones in 2007 indicate that the brakes have already been applied to the economy.

Lets hope the impact isn't too hard.

The resumption of some good IPO's will be one indicator of a turnaround.

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c Share Investor 2007

Burger Fuel Director explains Share Price drop

Josef Roberts, a Director of Burger Fuel (BFW) has kindly answered a question that many of you out there would like to ask him.

I put this to him in an email today:

Do you have any comments with regards to the dropping share price and your initial valuation of the IPO?

Josef replied

Not really – as you know at present there is nervousness in world markets and general tightening of the economy, but in our case it’s mainly due to a situation of low stock liquidity; so just a few small trades can cause the stock to drop if someone needs cash or wants to accept a lower offer. The actual trades are very low.

I don't share Josef's opinion as to the share price drop. I would agree with him that liquidity would affect the share price somewhat but if the market had an overwhelming positive feeling over Burger Fuel's IPO valuation then the low stock liquidity would have presumably shot the share price well above the NZ$1 IPO price as the reality of the market negativity over Burger Fuel's market cap has seen the share price dip to 65c as of today.



Burger Fuel Worldwide @ Share Investor

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c Share Investor 2007 

Burger Fuel: Beefing up store numbers

Your favourite search topic on the Share Investor Blog is "Burger Fuel" and far be if from me to care about being labeled a populist, but never mind I will wear that label with pride as long as the readers keep coming.

Here is a BFW update in week 3 of the companies listing on the NZAX.

Sellers are queuing up now at way below the NZ$ 1 IPO price with sellers at .80c and the first buyer at 60c , although 60c clearly values the company too high. No trades as yet today.

Getting closer to my entry price of below 30c but still no cigar.

News out today also that BFW have opened their 22nd store in Tauranga. Good on them for doing so and I hope the surfies down there get the munchies as often as they can, so as to frequent their local burger bar and boost the BFW share price.

It could definitely use the help.


Burger Fuel Worldwide @ Share Investor

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c Share Investor 2007

Burger Fuel: Share Price out of Gas

Just a wee update for you Burger Fuel (BFW) watchers from outside New Zealand and there are a lot of you-expat Kiwis perhaps?

Anyway, after almost two weeks the share price hit a low of NZ .80c on Wednesday 8 August. The volume was low as usual but its downwards spiral continues.

With a total of 7000 shares on the buy side with the next offer at 75c and the bulk of 53000 shares offered for sale being under the $1 IPO price sub 50c is looking like a good possibility before the year is out.

I will be interested in the company at anything below 30c.



Burger Fuel Worldwide @ Share Investor

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Director explains share price drop
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Marketing Burger Fuel's future
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Burger Fuel results and commentary

Discuss BFW @ Share Investor Forum - Register free



c Share Investor 2007

Burger Fuel's Daytime Drama

In the daytime soap opera that is the recent Burger Fuel(BFW)IPO, its first week as a listed company would have had it cancelled after its first episode.

After 5 days less than $NZ 10000.00 of stock has changed hands. In one day it was the NZX's biggest loser, the share price dropped 20% to 80c , on turnover of less than $1000.00. The very next day the show was resurrected, it was the NZ Share Market's biggest gainer, moving 25% to the previous high of one Kiwi Dollar-incidentally its listing price.

This moved the company Chairman to make a media comment:

"Company chairman Peter Brook said not much could be read into the share price change because there was very little liquidity in the stock.

"There are just not the shares out there to buy. I think if you wanted to buy 30,000 or 35,000 you would be paying $1.20 per share," he said".


Post listing media briefings from Burger Fuel have been strangely episodic when compared to life before the Burger Fuel listing and media circus kicked off but Brook was retrained in his comments. I mean fancy saying this "...not much could be read into the share price change...". Actually unless you have the mute button on with your back to the big picture I think the combo of the share price drop and low liquidity is telling us lots. Simply that the IPO was overpriced and the market has little confidence in Burger Fuel's prospects.

Josef Roberts and his team now have to prove themselves to the market. They failed to convince at the IPO and this last week market viewers were not really tuning in.

Burger Fuel is today sitting at a share price of 1 dollar with no shares traded. This values the company at 60 Million Kiwi Dollars, only 30m odd dollars less than Restaurant Brands(RBD), the NZX's other Fast Food stock. Remember RBD have sales of 300m VS BFW's 16m odd but the Burger Fuel Company will get its income mostly from franchise fees of which were around 3.5m. Not delicious figures.

With less than a third of the capital originally hoped for Burger Fuel must now change their initial plans, expensively mapped out in the $1.5M prospectus, expanding with less haste and relying more on Franchisees to stump up capital to expand store numbers and promised "global reach". In itself probably a better model than their initial plan of the company using their own capital to open new stores then selling them off to Franchisees. One positive in the myriad of negatives that swirl around this company.

Keep watching, Burger Fuels stock will be in low rotation with re-runs of the same volatile share price and rare glimpses of its star players, its execs only venturing out when a positive spin is needed or indeed if there is actually the possibility of a 10 season run.

I have a feeling there might be a cancellation after the first 1 or 2.



Burger Fuel Worldwide @ Share Investor

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Discuss BFW @ Share Investor Forum - Register free




c Share Investor 2007

Burger Fuel Listing 27th July 2007 (NZ time)

The story below from the NBR confirms that Burger Fuel is listing on Friday July 27.

After the big top up from its present owners and founders one can only guess that its appearance on the NZX today is going to be somewhat of an anti-climax.

It is a great little company but has been repeated often by myself and others, it overvalues itself and this overvaluing has led to the low interest in the IPO.

Had it been a lower valuation the market could have taken this IPO seriously and backed it fully.

As it is BFW is going to struggle today SP wise and will continue to struggle in the weeks and months to come.

Management have overestimated their abilities in a financial sense when it comes to the IPO, lets hope they havent done the same when it comes to future financial management projections.

Readers will have to ask themselves if founders have only managed to raise at best $5m NZ dollars of a sought after 15m, then the original plan is going to be somewhat constrained.

The reported $1.5m cost of the IPO is a laugh and there is no report yet as to whether that cost comes off the $5m raised. In the absence of further info we will be generous here and give them the benefit of the doubt until told otherwise.

With such a shakey start to its public life, Burger Fuel is going to struggle right from the get go. Not a good omen for its future.


The NBR Story

BurgerFuel to list after $2.7m top-up
NBR Staff


BurgerFuel will list on the NZAX on 27 July following a $2.75 million top-up from founders Chris Mason and Josef Roberts.

$5.25 million was raised from 2380 shareholders - although that also included shares bought by the founders from the public pool - making up the minimum $8 million equity sought.

The company originally hoped to raise $15 million for 26.7 percent of the company but the response to its "would you like shares with that?" campaign was unenthusiastic and the offer had to be extended.

The capital will be used to pay the upfront costs of more stores before these were on-sold to franchisees.

In Australia, BurgerFuel has one franchised store and hopes to franchise more as well as operating its own store due for construction soon in Sydney's Kings Cross.

Chairman Peter Brook said the company would look to roll out stores in other countries with local partners to reduce capital investment costs.

BurgerFuel is due to open in Tauranga and Napier soon to take the total store numbers to 24.



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c Share Investor 2007

Share Investor Interview: Josef Roberts, Senior Burger Fuel Director

Exclusive Interview with Josef Roberts, a director of Burger Fuel Worldwide [BFW.NZ] pre IPO and listing on the NZAX board of the New Zealand Stockmarket.

Burger Fuel IPO

New Zealand's fastest-growing gourmet burger chain BurgerFuel is putting its customers first as it plans to list on the NZAX after raising $15 million with an issue of 15 million shares at $1 each, with a one-for-five option to buy additional shares at the same price in 18-months' time. Minimum subscription is for $1000 worth of shares and options.

Funds raised from the issue will be used to fund the company's national and international growth aspirations, primarily in New Zealand, Australia, Europe and the United States. BurgerFuel currently has 19 outlets in New Zealand and one in Sydney.


This interview was conducted via email.



The Q & A

Share Investor

What exactly is the money raised to be used for?

Josef Roberts

Primarily securing and constructing new stores and expanding infrastructure to support growth. Although the construction costs of a franchisee owned store are paid for by the franchisee; capital is required to secure leases, make construction commitments and secure prime sites as they become available.

The stores built are then on-sold to franchisees. In this way capital can be recycled. In addition, however, it is possible that BFW could operate some stores until the appropriate franchisees are selected. In this case BFW would collect the revenue from those stores and could also elect to sell those stores on an earnings multiple, as opposed to a set franchise fee – so there are benefits – if a store is held and operated for a period of time by BFW.

Sometimes we have franchisees already signed and no site available and sometimes the other way around. Additional capital allows us to speed up store development by being able to proceed with immediately securing top locations as they become available and even operating them in the short term if necessary. However, we are primarily about franchising; this allows us to achieve much faster growth.

S.I. How was the value of the company at $60m arrived at?

J.R. Firstly, we have to remember that the $60 million valuation assumes a further $15 million in cash is raised in the IPO.

A company like ours is not so easy to value, as you know. A number of factors have to be taken into account such as the company investment to date, future earnings, growth capabilities, scalability, personnel and intellectual property - amongst other factors. The company has been extensively modeled under different scenarios to determine a valuation. Grant Samuel, the independent corporate advisory firm, analyzed the various scenarios and settled on a value that they considered to be achievable, based on our future growth potential and associated earnings.

Valuation ties into forecasts and as you know we are not providing those. Why? Well for a growth company like ours it is very difficult to confirm exactly where we will be in 12-months from now. As outlined on page 15 of the prospectus – there are 3 possible scenarios for expansion. Each would provide different financial outputs. If we were to make early predictions now and not achieve those predictions this could seriously impact on the company’s future share price. Accordingly, it is the most responsible approach to gain investment on the clear understanding that no projections are being provided.

Whilst we knew that this could make it harder for us to raise capital, we also believe in the fairness it gives investors up-front in accepting the terms we offer. We want them to assess the value and potential for themselves; which is what you guys are doing – even if this means they say “no thanks”.

The company intends to rely on continuous disclosure reporting to keep the market informed of key developments – such as yesterday’s announcement about our growth - already up 41%. Imagine what that would have done for our share price had we been listed?

We will have plenty of announcements to make in the future – because we are a high growth company and we operate very visibly. People can see progress and performance and this is what drives a share price – right?

To those who say the company is over-valued – they are entitled to their opinion. We know the value of what we have and we are confident in our ability to not only grow the company but also its share price. We have come to the market with an offer. If our offer is not acceptable – so be it – we stay private.

S.I. If you are opening company stores initially, how long do you intend to keep those stores?

J.R. As explained in question 1. However, in general only until the appropriate franchisee is appointed

S.I. The market is confused about what sort of company they might be investing in. Is it principally a franchisor or an owner of actual stores?

J.R. Principally a franchisor as explained in question 1, however, it is our view at this stage, that we should always own and operate at least one store long-term, in each country like we do in New Zealand and will do in Australia. This keeps us in touch with the reality of operations as well as providing a valuable training ground to personnel and franchisees in each local market.

S.I. Will stores be leased or owned outright?

J.R. Leased

S.I. Long-term, is the bulk of company revenue going to be based on royalty fees or revenue from store sales?

J.R. Answered in Q1. Also, please refer to page 54 of the prospectus – this sets out our revenue income. Clearly, you can see that royalty fees are the major on-going component, but up-fronts, transfer fees and income from our satellite kitchens also make substantial contributions.

S.I. There is similar competition from such outlets world-wide, most notably GPK in the UK, how well do you think you and/or your franchisees will do against this competition?

J.R. GPK is essentially a Wisconsin model. We think our track record in NZ in competing against Wisconsin speaks for itself. But we do not underestimate competition here or in other countries. In the end we are confident in our ability to compete with any gourmet burger offering.

What you have to understand with BurgerFuel is that we have strong operating systems that are scalable. We also have a strong brand that represents more than the sum of its parts. That is to say we have a defined culture – we don’t just make burgers – people eat BurgerFuel for the experience as well as the product and our culture. Once again, that’s either understood by investors or it isn’t.

S.I. It is nice to see owners retaining a stake in the business, so firstly why not float a larger stake if your intention is to expand quickly, wouldn’t it have been better borrow from banks, keep the company for yourselves if it is only a small 25% of the company going public?

J.R. We think that being listed will greatly assist us in expanding overseas as well as attracting franchisees – it’s as simple as that. Credibility toward securing leases, supply lines, staff, franchisees and other associated stake holders becomes easier if we are publically listed.

If people don’t want us listed here in NZ – I think you can work out for yourself what will happen. We will most likely continue as a private company and list further down the track in a different country or we may never list.

In respect of the 25% for $15 million, we have the ability to re-cycle capital (as explained in Q1). The options also provide for some future capital, as well as giving investors an incentive to invest now. If we asked for more now we would just be sitting on your cash – and you wouldn’t like that either Darren!

S.I. A related question to the above, why is the sunset clause on directors and founder owners for selling their shares such a brief one?

J.R. Yes, it could have been longer. Having said that, our aspirations are all about building a global brand. We are committed to doing that – I am personally doing this because I enjoy it and am passionate about growing BurgerFuel, just as I did with Red Bull in NZ and Australia. However, unlike Red Bull, this is a NZ brand. We feel it too can go global. It is my intention to be there when we open stores in the US, whether its next to the Viper room in LA, on the strip in Las Vegas or in Times Square I can’t say, but I want to be there for it. Chris is also a very passionate guy – he created this company and he loves it – it’s his life. We have everything to gain by building this up to be a huge company and increasing our own value as well as those of our partners (shareholders).

S.I. The decision to list on the NZAX instead of the NZX, why was that made when the disclosure rules of the NZX would give possible investors more confidence in their investments because as we know knowledge in investing is what it is all about?

J.R. The NZAX is designed for companies with high growth potential like us. They are not required to publish forecasts due to the fact that they are in a high growth phase and actual results could vary considerably.
We have come to the market with an offer on terms that we knew would not appeal to all investors – but they are our terms. We could have made grand projections now to attract investors (like other companies you know have) – but that is not how we do things.

As already outlined there are a range of scenarios for the way we can roll out and this goes to the heart of any projections we would have committed to. We want to be upfront about that. “Invest if you believe in us” – that is what our message is. People don’t have to invest. We would rather know that we have a certain style of investor. Like the franchisees that we select to become our partners – we want to attract investors who are there for the same reasons we are – because they are passionate about the company and believe that we can do it – (I can hear some of you laughing!!).

We’ve been criticised for targeting so called “naïve” investors. This is not the case at all. We want a big spread of investors including those who eat at our stores and take part in the ownership. Although these people may not be seasoned investors like yourselves, they should not be underestimated. They are the opinion leaders, they understand what makes a brand.

Our IPO advertisements are all about light hearted communication, boosting awareness and a bit of fun. This is who we are and this is how we do things. We polarize and we think that is important to build any strong brand or culture. It’s a mistake to try and be all things to all people.

We want a base of NZ investors who will review our business on a daily basis and tell us where we can improve. We think this is very important to our future. In this way, we have a constant R & D base assisting our international development. However, this offer is also for other serious investors who may not yet eat in our stores. We can see that by some of the larger amounts that are being applied for that also carry CSN numbers, that clearly, our growth potential and ability to drive the share price by announcements of progress and performance, is understood by some seasoned investors.

S.I. Finally, what or who was your inspiration to start the Burger Fuel company and did you intend to "go global" initially and where do you see your company in 10 years?

J.R. Chris knew he could make the world’s best burger and he knew he could come up with a scalable business model that could grow fast. He always wanted to take BurgerFuel global. For me; I invested for this reason. If you read the prospectus thoroughly you should get a strong sense of this. Just look at our trademark protection programme. This alone, demonstrates our vision in thinking global and acting to secure our intellectual property over the years.

Page 67 of the prospectus – clearly sums up where we see our company in the future.

S.I. Thanks for your time Josef and good luck for the future of Burger Fuel .


Burger Fuel Background

BurgerFuel started in 1995 when Chris Mason opened the company's first store in Auckland's Ponsonby Rd. It is the brainchild of founder and director Chris Mason, who met Josef Roberts when Roberts owned the Red Bull brand in New Zealand, and wanted to sell his drinks through Burger Fuel shops.

Roberts took Red Bull to Australia, and after selling the Australasian Red Bull franchise back to its original European owners, decided to join Mason and work to expand the business. He said both businesses were brand-driven. "But with Burger Fuel there is the prospect of exporting a Kiwi product globally."

Roberts said Burger Fuel eschewed private equity raising in favour of public listing because that would add to its credibility as it sought to roll out overseas.

Currently BurgerFuel serves over 35,000 burgers a week and has 20 outlets, with three more scheduled to open soon in New Zealand, including one in Queen St Auckland, and one planned for Kings Cross in Sydney.


Additional info from Josef Roberts unrelated to questions posed by Share Investor but furnished to us by him

This whole process reminds me of when I started Red Bull in NZ in 1996 and then Australia in 1999. When many laughed and mocked us for trying to sell a small, unusual tasting can of drink for an “outrageous” wholesale price of over $2.00! I was told “only Coca Cola can do something like this. Red Bull will never make it, it’s a fad drink that anyone can produce. This is destined to fail.”

Hmmmm!

Investors should look at the strong corporate governance and the people behind BurgerFuel. The advisors, the independent directors on the board – these are highly respected and experienced individuals who have chosen to join BurgerFuel. They did not need to. They have assessed the company’s prospects for themselves. Investors should take this into account.

We respect your community. We know that you guys carry huge influence. I bring you back to the fact that we have come to the market with an offer. Saying “here’s our price and terms”. If they are accepted – great we know we have the kind of partners (in the shareholders that buy in) that we want. If not – we will continue as a private company and still be successful.

Take a look at the total system sales growth figures from yesterday’s press release. Last year’s first quarter was a weekly average of $276,403, same period this year $390,379. Last week - $445,011.
We are growing anyway, but the IPO process alone has totally enhanced the value of the company even more. No one in New Zealand has not heard of BurgerFuel as a result of it. Remember, we’re a marketing company. Our campaign is all about growing the brand and selling burgers, as well as shares - and that’s what we’re doing.

Darren, best regards and thanks again for the time you have given us. We know this may not be everyone’s kind of investment and we respect that. We also respect you and your community’s views.

I would like to say one last thing though – if NZ continues to criticise companies and publish material so quickly before thoroughly assessing the offer – aren’t we somehow killing our own country? It’s amazing what gets published in the media without the prospectus even being read. There is in fact a lot of information in our prospectus for potential investors - it’s not just a pretty document.

New Zealand needs higher risk growth stocks (which is what we are) just as it needs the kinds of stocks that are like “watching paint dry”.

Would the last entrepreneur in NZ please turn the lights off when you leave? Australia, UK, USA – here we come!

Josef Roberts

Director

BurgerFuel Worldwide Limited


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c Share Investor 2007