Initial Public Offerings (IPOs) are the first time a company places its shares on the stock market.
The company in consort with its financial advisers prices the stock offering and investors set the market price by their own purchases or sale action.
We often hear of the IPO that soared on the first day of trading as investors lined up to buy this hot stock.
Yours Truly has learned the hard way that IPOs usually sell for less than issuing price within months. My rule to not buy IPOs is hard and fast but a recent offering intrigues me.
The Pet Valu Holdings Inc. chain of retail stores raised $316 million in shares when the company went public in July. Pets are big business with 9.4 million pet-owning households across the country.
Pet Valu has 609 stores with about two-thirds franchised and the rest owned by the company.
At this point PET has about 16 per cent of the pet products market. The larger format PetSmart chain has 15 per cent; Walmart has 12 per cent; Costco had eight per cent and Loblaw’s, six per cent.
With store locations within five km of 60 per cent of Canada’s population, Pet Valu has spread since its 1976 opening. There are no Quebec stores.
The company was public but in 2009 was acquired by a U.S. operation called Roark Capital Management. In 2021 the new IPO was offered at $20 a share.
Pet Valu is more than just another retailer of pet food and treats, although 70 per cent of revenues come from those categories. About 58 per cent of stores offer self-serve dog washing bays with 35 per cent offering full service dog grooming.
The company has a successful loyalty program. Average sales basket from loyalty customers is $56.96 compared with average basket of $43.04 from customers not enrolled.
A new online site accounted for one per cent of sales in February.
In the last 10 years the company has increased store numbers by 15 per cent a year. The benchmark same store sales average of stores open one year has averaged 10 per cent annual increases.
Growth has been highest in rural/fringe markets at 13 per cent and suburbs, nine per cent compared with metro sites at seven per cent.
The company has plans to expand the number of stores to 1,200 by building 25 to 30 new outlets a year.
For $400,000 franchisee owners can expect an average $1.4 million annual sales from which PET collects various fees.
PET appears to have a great future. From the IPO price of $20 shares have reached a recent $27 for a 35 per cent gain so far this year.
A $27 share values the operation at a high 17 times free cash flow from last year.
Roark and associated operators still own 52 per cent of the shares. During their complete ownership they orchestrated the shareholders’ equity to a minus $449 million.
PET is an operation to put on the watch list and wait for a nice dip in share value.
CAUTION: Remember when investing, consult your adviser and do your homework before buying any security. Bizworld does not recommend investments.
Ron Walter can be reached at [email protected]
The views and opinions expressed in this article are those of the author, and do not necessarily reflect the position of this publication.
