The cost of floating on the ASX has resulted in Myer posted a depressing 74.4% decline in first-half profit.
Profit for the period fell from $83.2 million to $21.3 million. On the other hand, if the IPO expenses are taken out, Myer actually increased profit by 38% and increased revenue by $1.8 billion. Not bad going.
Myer Holdings
ASX Code: MYR
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Game On – Myer And Kathmandu IPOs
Another month has rolled around and we are now only 38 days away from the fat guy in the red suit bringing presents to all the good kids. Michael, our Head of Research, has prepared a paper in the Old Dog New Tricks section of this month s newsletter asking if the market s good run can continue wouldn t that be a nice present for the rest of us?
This month saw the listing of Myer and Kathmandu – the two IPOs I spoke about in last month s Message from the Chief article. Myer had a placement price of $4.10 and closed the first day at $3.75 (-8.5%). Not a great outcome, but hey – Jennifer Hawkins rang the bell in the foyer of our building here in Melbourne, and that gave us a bit of a thrill in office, the day before the Melbourne Cup. Myer, as to be expected, blamed its dull first-day performance on poor timing.
Then Kathmandu listed on November 13, and I thought to myself, Here we go. They re going to say that the stock started off badly because it came onto the market on 13th day of the month. KMD was issued at $1.70 and finished its first trading day at $1.76 (+3.53%). Not a massive upwards movement, but you never go broke taking a profit and, just for the spin doctors at Myer, Kathmandu managed this result even with the market going down!
Now IPOs aren t all about what happens on the first day. Several good companies have listed and struggled earlier in life only to become market superstars later on. But when you look at these two companies as potential investments, you really have to look at market potential.
Unlike the big miners such as BHP and RIO, where a good discovery can increase production by 100% and justify a substantial jump in the share price, Myer just sells items manufactured by third parties. So I ask myself, how could it double its profit and thereby substantially improve its share price?
The only answers I can come up with are:
a) Kevin Rudd has to give out another bonus to stimulate consumer spending (doubtful), or
b) Cost cutting, which is the path private equity company TPG chose
Of course, choosing where to invest is up to you, and there are other incentives (such as dividends) to holding shares, but as far as I am concerned Myer is going to struggle long term without a substantial change in strategy. Kathmandu, on the other hand, is probably the higher risk investment due to its size, but the company makes its own products and has a very strong niche. It should be able to continue to exploit the margins available.
One thing I love about November is that you get to see what you, your friends and your colleagues would look like if we were all still running around in the 70s. This year is the first year that I have entered the time warp and participated in Movember, and this is what I would like to share with you:
Fundraising for a good cause is hard work. If you feel the urge to sponsor me and support this great cause (and check out more Mo photos), please visit my Movember Sponsorship page. And if you do make a donation, enter your best stock recommendation in your message!
It s that time of the year when listed companies hold their Annual General Meetings, and directors are held to account by their loyal band of shareholders. MDS Financial is holding its AGM on November 20 at 11:00 am at the Spencer Room, Batman s Hill on Collins, 623 Collins Street, Melbourne.
If you would like to attend, even if just to see my Mo, please feel free to do so.
That s it from me for this month. Happy trading!
Damian Isbister
CEO Software & Online Trading
Kathmandu shares went public this morning at 11.00am, with shares opening at $1.775, up from its $1.70 issue price.
Early trading had the share price up as high as $1.82.
The Kathmandu IPO has been the focus of a great deal of attention, with comparisons to the Myer float, and concern over the impact of news that founder Jan Cameron is developing a new outdoor active wear brand to take on Kathmandu.
ASX: KMD
Myer shares have recovered some ground yesterday and this morning, after Monday’s fall.
The closing price yesterday was $3.81 – a 4% drop on the issue price.
The 8.5% drop in price on Monday, the first day of trading for Myer Holdings Ltd, has been attributed to a slow volume day for the market, and a general sense that the IPO was overpriced. However it’s expected that institutions and long-term investors will move in to provide support.
Myer is due to release its first-quarter sales next week, and is forecasting an increase of 3%.
Rival retailer David Jones releases its first-quarter sales results tomorrow, and as a preview has said that sales in the first 8 weeks of the period were stronger than expected, and better than the same time last year.
Myer Holdings Ltd
ASX Code: MYR
David Jones Limited
ASX Code: DJS
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Retail investors have flooded Myer with applications for $1 billion worth of shares in next Monday’s float, making this the biggest offering for retail shareholders since Telstra’s T1 sale in 1997.
The institutional bookbuild begins tomorrow. It’s expected that altogether there will be a 50-50 split between retail and institutional investors.
As the Myer team take their investor roadshow through Asia, US institutional investors are putting the pressure on the company’s majority owners TPG and Blum Capital to fully sell down their stake before the float.
Myer’s chief executive Bernie Brooks says there has been strong US interest in the float, with the Australian economy presenting an attractive environment for international investors, and the examples of JB Hi-Fi, David Jones and Woolworths showing Australian retail shares can be a lucrative option.
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A New Zealand business newspaper is reporting that outdoor gear retailer Kathmandu plans to float by Christmas.
Rumours of a float have been increasing in recent times, particularly following the appointment of James Strong as the new chairman, and as the Myer float gathers strong support.
The Independent believes Kathmandu’s owners Goldman Sachs JBWere and Quadrant Private Equity were likely to sell at least 75% of the business, and were currently looking into pricing and demand.
75% of shares would be sold in Australia.
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It comes as no surprise that demand for Myer shares has been strong.
Demand for stock by retail stockbrokers on behalf of their clients has exceeded the size of the entire IPO, and allocations have had to be scaled back.
Part two of the retail offer kicks off today, with Myer’s 14,000 staff and more than 3 million Myer One loyalty card holders now able to lodge applications to buy shares.
As the only members of the public with access to apply for shares, there has been a rush to sign up for Myer One membership in recent weeks. Silver and Gold-level Myer One members are guaranteed to receive stock.
The retail offer component will close on October 23. The final share price will be determined after the institutional book-build on October 29-29, ahead of the November 2 listing.
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Myer has lodged its eagerly-anticipated prospecuts this morning.
Among the key details:
More than 140,000 people had registered to recieve the prospectus, the keen interest being seen as a sign of the gathering strength of “Australia’s budding bull market”.
The prospectus showed that private equity owners TPG and Blum Capital could sell all of their shares, but some, including Solomon Lew, feel TPG retaining a meaningful stake would send a message of confidence to institutional investors.
In the next few weeks the float will be marketed to retail investors, followed by an institutional bookbuild.
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Myer has confirmed it will get the ball rolling on pre-registration for its public float, after releasing some strong earnings results yesterday.
Profits were up 15% to $109 million, beyond expectations.
The public float of Myer has been highly anticipated, and along with carsales.com is expected to be among the major profile floats of the year.
Carsales.com had a strong debut yesterday, and this performance, along with the rising sharemarket, is expected to encourage those companies which shelved their float plans during the worst of the economic crisis.
There are some reports that Myer will require shareholders to sign up to the Myer One loyalty program, in an effort to increase the customer base. There is also speculation that existing Myer One members will receive preferential treatment during the float.
400 senior managers have already been issued shares under the employee scheme.
A prospectus is due to be lodged around September 28.
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