Kathmandu IPO: Shares set for discount

According to a Bloomberg story the Kathmandu Holdings [KMD.NZ]IPO looks set to be oversubscribed, indicating that either this is the best IPO since IPOs were invented or that investors have failed to look close enough into the prospectus for the numerous omissions and sleights of hand made by current owners Milford fund shareholders and their associates and decided there is money to be made.

If the Myer float last week is anything to go by Kathmandu is going to begin trading at a deep discount when the shares begin trading on the NZX and ASX in late November.

Myer Holdings Ltd [MYR.ASX] shares were dumped as institutions holding stock soon realised they couldn't stag the issue and began to sell off.

Those patient investors wanting to get Kathmandu shares may get them for closer to their worth if they are willing to wait a while and let Mr Market decide what the company is worth.

KEY DATES

Prospectus date Friday, 23 October 2009

Retail Offer opens Tuesday, 27 October 2009

Retail Offer closes 5:00pm AEDT/NZDT, Friday, 6 November 2009

Institutional Offer and Institutional Bookbuild opens Tuesday, 10 November

Institutional Offer and Institutional Bookbuild closes Wednesday, 11 November 2009

Pricing and allocation announced Thursday, 12 November 2009

Expected commencement of trading on ASX (conditional and deferred settlement basis)
and on NZX (conditional settlement basis) Friday, 13 November 2009

Institutional Offer settlement and last day of conditional trading Tuesday, 17 November 2009

Shares expected to begin trading on a normal basis on NZX Wednesday, 18 November 2009

Expected despatch of holding statements and any refund payments if required Thursday, 19 November 2009

Shares expected to begin trading on a normal settlement basis on ASX Friday, 20 November 2009


Kathmandu @ Share Investor

Kathmandu IPO: Prospectus Analysis
Kathmandu IPO: Jan Cameron lands a blow to IPO
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 at Share Investor Forum to download
Download Kathmandu IPO Prospectus

Discuss Kathmandu at Share Investor Forum

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From Fishpond.co.nz


Initial Public Offerings, by Richard F. Kleeburg

c Share Investor 2009

Has Warren Buffett Gone Nuts?

Make no mistake, I am a big fan of Warren Buffett. I follow his investment style in my own Share Investor Portfolio as faithfully as I can given my individual circumstances and background and have followed his fortunes closely in the years that I have known about him but I think he has gone a little nuts over the last year or so.

The past 12 months of financial turmoil has seen saturation coverage of the billionaire as he professes to be "Buying American", doing very large deals to buy stakes or debt in Harley Davision, Mars/Wrigley, Goldman Sachs, Tiffany, a whole host of other stocks and his latest coup de grace, the full takeover of Burlington Northern Santa Fe, the large North American railroad freight mover.

His media over-exposure on its own seems a little desperate but the move on Burlington seems a little over the top considering he seems to be paying full price for the company, something he usually tries to avoid.

This deal will be Buffett's Berkshire Hathaway largest deal ever to take full control of the 77% of the company it doesn't already own and comes on top of news that his company will do a 50:1 share split of its "B" listed shares, something that Buffett has talked against for as long as he has run Berkshire.

None of these things on their own -with the exception of the Burlington purchase - indicate anything else other than looking to buy a "bargain" during the current economic downturn but the latest large purchase just seems to smack of putting it "all in" in an attempt to score the big one. Something he has done many times successfully in the past.

I know alot less than Buffett about the rail freight business, it may be a great long term purchase and there could be an ulterior motive to the move apart from the freight business but if you pay too much for an asset, well that is something Buffett has written books about. He normally wouldnt do it.

He really has me a little worried about the real state of affairs of the current financial turmoil. It is worse than what most would have us believe but Warren's actions smack of a man who knows that things could be alot worse.

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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.


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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

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


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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