Running The Numbers – Kathmandu IPO [Some Estimates]
Kathmandu is an out-door goods retailer. Kathmandu was founded by New Zealander Jan Cameron in 1987. The company has 84 stores with 45 in Australia, 32 in New Zealand and the remainder in the UK. Goldman Sachs JBWere and Quadrant Private Equity acquired Kathmandu (then 46 stores) from Cameron in 2006. That transaction valued Kathmandu at around NZ$275 million.
The company is planning an IPO on the NZX (New Zealand Share Market). Gareth Vaughan in The Independent has a good summary of the details. There is a Prospectus expected in the next week. We thought that we would get in early and put out some high-level estimated numbers. We have not seen anything that has not been in the media – these are high-level estimates only. Commentators are estimating the IPO will value the company at around NZ$450 million.
Our base case assumptions are NZ$400 million of 2009 revenues with a 10% EBIT margin. We have also assumed capital expenditures of NZ$30 million per annum. We have assumed that revenues grow at 10% per annum and that profitability (at the EBIT line) remains constant at 10%.
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$411 million is our mid-point valuation of Kathmandu.
An enterprise value is the value of the whole business – debt and equity. To calculate the value of the equity in Kathmandu we need to deduct net debt (long-term borrowings less cash). Without these numbers available we have only calculated a value of the whole business – debt and equity. The ultimate value of the equity would depend on the debt and cash on the balance sheet.
When the actual numbers are released it will be worth looking at some comparators. We have a range that you can look at – you can choose your own. But here are some suggestions:
Nordstrom ($JWN) – Interactive Comparator Analysis
The Gap ($GPS) – Interactive Comparator Analysis
Limited Brands ($LTD) – Interactive Comparator Analysis
Below is a link to the static Valuecruncher valuation report for Kathmandu. The report outlines more details about our initial valuation. It is a piece of high-level analysis based on limited available information.
Valuecruncher-Valuation-Report-Kathmandu-IPO-Estimates-20091007