Dick Smith Shares Debut With Value Up Five-Fold Since July
Dick Smith Holdings Ltd. (DSH), Australia’s largest electronics chain by store numbers, made its stock market debut with a valuation more than five times the sale price received by former owner Woolworths Ltd. (WOW)
Shares in the company climbed as much as 5.5 percent in Sydney before closing at the offer price of A$2.20. That gives Dick Smith an enterprise value of A$534 million, compared to the A$94 million that Woolworths agreed in July to receive from the sale of the stores.
Initial public offerings of buyout-backed companies in Australia may raise as much as A$2.5 billion over the next six months, more than the total amount of such sales over the past two years, according to data compiled by Bloomberg. Anchorage Capital Partners, whose purchase of Dick Smith was announced last September, will hold onto a 20 percent stake until after the company issues its 2014 annual results, with managers holding another 11.5 percent under similar terms.
“As equity markets are going up it makes it attractive for private equity in this instance to sell,” Anthony Vogel, an analyst at BBY Ltd. in Sydney, said before the shares began trading today. “With regard to profitability, clearly there’s been a big turnaround.”
Founded in 1968 by the entrepreneur of the same name, Dick Smith was bought by Woolworths in 1982 and now has 359 stores in Australia and New Zealand and 3,700 employees, according to its share prospectus.
The company forecasts pro forma net profit will rise to A$40 million in the year ending June 2014, from A$6.7 million last year, according to the prospectus issued last month.
Woolworths set aside A$420 million to pay for restructuring the chain during 2011 and wrote its asset value down to zero. The company accepted A$20 million for the sale of the chain last September and agreed a further A$74 million payment in July to free Anchorage from the need to compensate it for any gain on selling the business.
Investors have driven up prices of Australian retailers over the past year as the cutting of interest rates to a record-low 2.5 percent and an 8 percent rise in average home prices raise expectations that households will increase spending.
The Westpac-Melbourne Institute Consumer Confidence Index (WMCCCONS), which had recorded just two positive readings in the 12 months before Woolworths announced the Dick Smith sale on Sept. 27, 2012, has shown just two negative results in the 14 months since.
Shares of JB Hi-Fi Ltd. (JBH) have risen 122 percent since the sale was announced, while those of the country’s largest electrical goods retailer by sales Harvey Norman Holdings Ltd. (HVN) have gained 60 percent. The S&P/ASX 200 index is up 20 percent over the same period.
With a market value about 77 times last year’s net profit, the current price gives Dick Smith the fourth-richest valuation for an electronics retailer in Europe, North America and developed Asia-Pacific countries, according to data compiled by Bloomberg. The median price-earnings ratio among 43 companies for which data is available was 15.3, the data show.
Woolworths didn’t regret its decision to sell the business and selling off the chain had been part of Chief Executive Officer Grant O’Brien’s pitch for the job he assumed in October 2011, the company’s chairman Ralph Waters said at its annual shareholder meeting Nov. 26.
“We might have paused for a moment and thought, ‘‘Well maybe Dick Smith might be a little bit more profitable in a year or two if we left it’,’’ he told shareholders. ‘‘If you really like it enough, you can still buy it.’’
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