NZ Automotive Investments (NZAI), the company behind one of the country's largest used car dealerships 2 Cheap Cars, is gearing up to list on the New Zealand Stock Exchange next week.
The company began working towards listing on the sharemarket in the second-half of last year and received its letter of approval this morning.
The shares will list at $1.30 each, valuing the business at about $59 million or 6.9 times ebitda.
Of the 45.55m shares on issue, 37.6m are held in escrow and cannot be traded, leaving 7.9m able to be traded publicly when the company lists.
2 Cheap Cars founders Eugene Williams and David Sena have entered into agreements to sell down portions of their holdings in tranches over the next three years. The pair founded the retailer in 2011 after identifying the need for more affordable vehicles in the market.
NZAI is the holding company for 2 Cheap Cars and its more recently established finance division New Zealand Motor Finance.
NZAI chairman Karl Smith, which joined the board in September, told the Herald the listing and bell-ringing ceremony at Jarden House next week would be low-key, and despite it being the first of the year there would be no confetti cannons.
"We're more into under-promising and over-delivering," Smith said of the automotive group's market debut.
"Because it is a direct listing we are not issuing new shares into the market, we are exposing existing shares and the founders will sell down a portion of their shares. They will remain cornerstone shareholders, controlling about 40 per cent in three years' time."
Smith said company shares were "conservatively priced" despite NZAI being a strong cash-generating business. It was targeting a 50-60 dividend payout ratio, and would advise of its earnings forecast at the end of the month.
"It is priced very conservatively against our competitors here in New Zealand and also to some Australian benchmarks."
Its biggest competitor is auctioneer Turners, which listed on the NZX in 1985.
Smith and chief executive David Page are confident of strong demand for its stock: "It's a good, tidy, positive yield - better than what you are getting at the bank."
NZAI recently appointed vehicle finance expert Page as CEO and new board of directors, including Charles Bolt, Michele Kernahan and Tracy Rowsell, with a view of leveraging its retail business to support growth of its multimillion-dollar retail finance book.
New Zealand Motor Finance was set up in 2019 to service around a third of its used-car clients who wanted finance, which amounted to more than $30 million a year through third-party finance companies.
It now wants to expand its own book, further reducing costs to customers. It has bolstered its management team as part of this.
"The idea of listing on the stock exchange through a direct listing will gives us the ability to raise capital in the future," Page told the Herald.
NZAI has its own procurement team based in Japan and imports about 8 per cent of all used cars into the country from Japan.
2 Cheap Cars sells more than 10,000 cars a year through 12 dealerships.
Smith said there was also room for NZAI to open new dealerships. It would also be focusing its efforts of growing its second-hand hybrid and electric vehicle imports and sales.
"Strategically there is certainly some opportunity to look at certain new openings, not around every single major centre," Smith said.
"New Zealand has about 4 million light vehicles, one million are traded each year, and about 900,000 are coming up to the age of scrapping, so we are well-placed to keep channelling vehicles through."
Most hybrid and electric vehicles imported into New Zealand were at the premium end of the price scale so there was growth opportunity for 2 Cheap Cars to bring in affordable options as demand continued to grow, Page said.
Currently, It sells more than 100 hybrid and electric vehicles per month.
"There is still further consolidation to go in this industry and continuing to escalate our opportunities with lower emissions and EV, and I think leveraging that direct procurement chain between New Zealand and Japan has significant upside - 96 per cent of all used cars coming to New Zealand come from Japan, and we've got an underpinning marketplace that requires constant renewal and I think that will start accelerating as we head towards lower emissions."n