Friday, October 30, 2009

Kathmandu IPO: Jan Cameron lands a blow to IPO

I have been covering the Kathmandu IPO over the last few weeks and am working on the prospectus in between changing nappies and trying to get some sleep.

News out today that Jan Cameron, former owner of Kathmandu, will set up her own outdoor clothing chain in New Zealand and Australia is clearly bad news for the IPO:

Now she has revealed she is well advanced in plans to set up an outdoor clothing business of 60 stores - 30 in New Zealand and 30 in Australia - to compete with Kathmandu next year. She said she was earmarking A$27 million for the venture.

She was even dismissive of the Kathmandu model of regular 50 per cent off sales.

"I imagine that if we are offering a similar product at competitive prices, at everyday low prices, around 50 to 60 per cent lower than Kathmandu, I imagine that might be quite attractive," she said. "I really love the product and the industry and I see an opportunity with a different model.'' More at Stuff.co.nz

Cameron is an individual not to be underestimated when it comes to competition. She has made a career out of buying cheap assets and making money from them and her retail prowess when it comes to starting a business is almost unparalleled.

She recently bought up large stakes in Pumpkin Patch Ltd [PPL.NZ] Postie Plus Group [PPG.NZ] and purchased cheap retail sites in Australia abandoned by The Warehouse Group [WHS.NZ] a few years ago and set up a cut price chain.

Her move back into outdoor retailing will affect the value of the Kathmandu IPO to investors because of the direct competition with her old company.

All the figures contained in the prospectus, on which the value of the company is based, are now largely academic due to the new entrant and prospective investors will now have to reassess their position as they contemplate writing out their IPO cheques.

Disclosure: I own PPL and PPG shares.


Related Share Investor Reading


What is Jan Cameron up to?

Kathmandu @ Share Investor

Kathmandu IPO: What is it worth?
Kathmandu IPO: Retail Interest High
Kathmandu IPO: A tough mountain to climb
Kathmandu No.1 but IPO should get the Bullet
Download the detailed Kathmandu Value Cruncher Report - Requires free registration Share Investor Forum to download
Download Kathmandu IPO Prospectus

Discuss Kathmandu at
Share Investor Forum

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c Share Investor 2009



Monday, October 26, 2009

Kathmandu IPO: What is it Worth?

I have given you my opinion of the Kathmandu IPO on a number of occasions, based on my knowledge of the company from media circles and from the downturn in economy as a whole as it affects retailing.

It is however good to get other views from people with different opinions and ValueCruncher.com has done an analysis based on 3 different scenarios that is very interesting:

Valuecruncher has completed a base case valuation and three separate scenarios for Kathmandu. The first scenario (EBIT 8%) assumes EBIT margins of 8% against 10% in the base case. The second (Growth 5%) assumes 5% growth not the 10% of the base case. The third (CAPEX $40m) assumes CAPEX of NZ$40m compared to NZ$30m in the base case.

This base case and three scenarios give an enterprise value range of NZ$354 million to NZ$460 million (8.9 to 11.5x estimated 2009 EBIT). Valuecruncher gave a 25% weighting to each scenario which gives a NZ$411 million valuation (10.3x estimated 2009 EBIT). This NZ$411 million is our mid-point valuation of Kathmandu. See Valuecruncher for more

Valuecruncher have given this alot of thought but in my opinion their models, while giving 3 possibilities of value for the company, seem too positive given the global economic outlook.

Indications have been that sales at the company have been down, so a prospective investor needs to assume the worst in the current economic climate and that means no growth at all or indeed going backwards.

Debt levels are also largely discounted in the VC model, and as many have commented, debt levels were high over a year ago at more than $NZ180 million and the majority of IPO money is going to the former owners, not to be used within Kathmandu itself.

In addition more capital will be needed to fund the aggressive growth plans that management have.

To be fair Valuecruncher's estimates, as they point out, are based only on publicly known information, excluding the prospectus, so their estimate of value, like mine, is a bit of an educated punt.

We will look at the Kathmandu IPO prospectus - Requires free registration at Share Investor Forum to download


Related Share Investor Reading


What is Jan Cameron up to?

Kathmandu @ Share Investor

Kathmandu IPO: What is it worth?
Kathmandu IPO: Retail Interest High
Kathmandu IPO: A tough mountain to climb
Kathmandu No.1 but IPO should get the Bullet
Download the detailed Kathmandu Value Cruncher Report - Requires free registration Share Investor Forum to download
Download Kathmandu IPO Prospectus

Discuss Kathmandu at
Share Investor Forum

Related Amazon Reading

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Initial Public Offerings by Richard F. Kleeburg
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c Share Investor 2009

Friday, October 23, 2009

Kathmandu IPO: Retail Interest High

I have to say I am very surprised by the level of interest in the Kathmandu IPO.

This comes after confirmation of the IPO where Kathmandu will offer between 166.9 million and 197.4 million shares or 84-99% of the issued capital to investors. The IPO will be valued at between $A1.65 and $A1.90 ($NZ2.01 – $NZ2.32). This will raise a total of between $NZ338.6 and $NZ457.2 million.

Economic circumstances as they are at present would at first thought be indicative that there was no money around.

As I pointed out a few weeks ago Google searches that have reached this blog with "Kathmandu" as the search subject were gathering pace.

I can inform my readers that the level of interest in this subject has at least tippled since then with a record being set for readership for the Share Investor Blog.

As before the interest comes mainly from New Zealand and Australian readers.

This level of interest shows that at retail level investors are possibly ready to take some risk again after being burned in the sharemarket and that there is spare cash around to invest.

Having said that it could just be curiosity for a major recognized brand that will end in disappointment for the company as happened with the Burger Fuel IPO in 2007.

Kathmandu has aggressive expansion plans in Australasia with the possibility of 70 stores being opened over the next 3 years.

It looks like then a large part of the IPO funds will be spent on expansion rather than paying down their very large debt - disappointing in the current economic squeeze and folly considering that same store sales and overall company profit is down.

The IPO opens on October 27 and closes on November 6 and the shares will then begin trading on the NZX on November 18.

Investors interested in buying Kathmandu shares might be better advised to see what happens to the share price post IPO after company results are announced to the market.

Present Kathmndu owners will be hoping for a good Christmas shopping season to bolster the share price because current company fortunes do not make for pleasing reading.


Related Share Investor Reading

What is Jan Cameron up to?

Kathmandu @ Share Investor

Kathmandu IPO: What is it worth?
Kathmandu IPO: Retail Interest High
Kathmandu IPO: A tough mountain to climb
Kathmandu No.1 but IPO should get the Bullet
Download the detailed Kathmandu Value Cruncher Report - Requires free registration Share Investor Forum to download
Download Kathmandu IPO Prospectus

Discuss Kathmandu at Share Investor Forum

Related Amazon Reading

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Initial Public Offerings by Richard F. Kleeburg
Buy new: $26.70 / Used from: $27.70
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c Share Investor 2009

Monday, October 19, 2009

Stock of Week: Restaurant Brands Ltd




This weeks Stock of the Week, Restaurant Brands Ltd [RBD.NZ], as I pointed out last week, is a tale of two stocks.

It takes a bit of a leap of faith by current shareholders not to sell and for new shareholders wishing to buy - current fortunes of the company now being at a high and the share price starting to reflect that.

All is not lost though!

This company has rallied from penny dreadful status many times before and has managed to reward shareholders who got in at the early stages and there is probably more upside to come.

From a 52 week low of 58c to the current 52 week high of NZ$1.42 the share price looks likely to rally closer to the 2 dollar mark as it has done before so there is room for a good short term gain if you think the company profit is unsustainable or room for a good long term return if you think the company is on track for more of the same -this would defy company history however.

The dividend has just been raised for the latest results to 4.5 c to give this stock a gross return of slightly over 7.5%, not bad when term investments are getting 4%.

Good luck!


Stock of the Week Series

New Zealand Refining Ltd
Hallenstein Glasson
Mainfreight Ltd
Fisher & Paykel Healthcare
Xero Ltd
Auckland International Airport
Sky City Entertainment Group
Burger Fuel Worldwide
Michael Hill International
Contact Energy Ltd
The Warehouse Group
Fisher & Paykel Appliances


Restaurant Brands @ Share Investor

Restaurant Brands: Buy or Sell ?
Pizza Hut sell-off provide opportunities all-round
Danny Diab & Restaurant Brands
2008-2009 KFC sales figures mislead investors
KFC Finally Flying
Starbuck's New Zealand Cup doesn't runneth over
RBD gives KFC a push
McDonald's playing chicken with KFC
Restaurant Brand's Pizza Hut faces increasing competition
RBD sales analysis
RBD saga continues: CEO leaves
The secret recipe is out
2007 FY profit analysis
Delivering increased profit in October 2007
No reason for optimism in latest sales figures

Discuss Restaurant Brands @ Share Investor Forum

Fast Food, Fast Track: Immigrants, Big Business, And The American Dream
Fast Food, Fast Track: Immigrants, Big Business, And The American Dream by Jennifer Parker Talwar
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c Share Investor 2009