Clothing and sporting goods retailer Kathmandu has announced plans to add another 70 stores to its current network of 82 outlets over the next three five to years as it tries to get investors to support its $380 million public offering.
Kathmandu, which is headquartered in New Zealand, plans to list on the Australian and New Zealand sharemarkets on November 18. Between 166.9 million and 197.4 million shares will be sold to retail and institutional investors based on an indicative price range of $1.65 to $1.90 per share. That means the company will have a market capitalisation of between $330 million and $380 million when it lists.
Kathmandu is currently owned by two private equity companies: Quadrant Private Equity and Goldman Sachs JB Were’s private equity arm. They bought the company from founder and rich lister Jan Cameron in 2006 for around $225 million.
Kathmandu’s growth is solid if not spectacular. Sales have increased from $133 million in 2006-07 to $176 million in 2008-09 and expected to climb to $197 million in 2009-10.
Earnings before interest, tax, depreciation and amortisation are expected to be $47 million in 2009-10, compared with $35.9 million in 2008-09. The company is also operating at a super-impressive gross margin of 64%, which reflects the fact that it mainly sells Kathmandu products in its stores and is extremely good at controlling its supply chain.
Kathmandu will be valued at 13 to 15 times forecast 2009-10 earnings, compared with valuation for the Myer float at between 14.3 and 17.3 times.
Despite Kathmandu’s ambitious growth plans after the float, analysts have been quick to criticise the IPO as a great deal for the sellers and a poor deal for investors.
New Zealand analyst Brian Gaynor from Milford Asset Management is concerned by the fact that the $275 million to be raised in the float will go straight to the private equity vendors, and will not be reinvested in the company’s future growth.
“The money being raised through this issue, which is rather substantial, is not going into the company. That doesn’t mean it’s not going to grow, but the money being raised through the IPO is not being used to grow it. It’s going to have to find funds elsewhere to grow,” Gaynor told TVNZ this morning.
“I look at this float, even though it might be successful, as its suits that vendor first, institutions second and unfortunately retail investors are at the bottom of the pile.”
However, chief executive Peter Halkett says the company has room to grow.
“We believe there are further opportunities to drive earnings by improving existing store sales and margins through refurbishment, expansion of product offerings and further marketing initiatives.”
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
