Aussies Kathmandu, Kiwis Kathmandon't

Photo / Richard Robinson

The vast majority of the retail offer of shares in Kathmandu has apparently gone to Australian investors, with little interest on this side of the Tasman.

Local sharebrokers say they had few inquiries about the retail part of the transtasman float, which closed on Friday fully subscribed.

The offer to institutional investors closes tonight. Brokers expressed surprise that the outdoor equipment retailer did not conduct presentations around New Zealand brokerage houses to drum up interest.

Grant Williamson, director of Christchurch firm Hamilton Hindin Greene, said interest had been "extremely light".

As a Christchurch sharebroker - where Kathmandu is based - it was particularly surprising that the company had not presented to it, he said.

He said investors had been burnt before by the private equity sector floating off its companies.

Also, last week's float of Australian retailer Myer, which is trading at a discount to its list price, was not encouraging.

"A lot of retail investors are quite prepared to wait and see how [Kathmandu] lists before making a decision whether to be shareholders."

Kathmandu founder Jan Cameron's comments, after the announcement of the float, that she would open 60 stores across Australasia in direct competition to the retailer "would have put off a few".

Another broker who did not want to be named said the lack of presentations made it hard to generate enthusiasm. "The reality is it was a disappointing level of interest."

Ian Waddell, managing principal of Wellington sharebroker Waddell Johnston McCarthy, said his firm had a saying - "Kathmandon't".

The firm wasn't given an entitlement to Kathmandu but wouldn't have taken it up, because it considered the stock too expensive compared with other retailers.

For example, based on dividend yield The Warehouse and Briscoes were both cheaper, he said.

Waddell had "zero" inquiries from clients about Kathmandu.

The brokers said they expected that the lion's share of the offer had been taken up across the Tasman.

"Australians seem to be prepared to pay higher PEs," Waddell said.

Meanwhile, Australian investment manager Wilson HTM has put out a "buy" advisory on Kathmandu, saying the retailer's planned rollout of 70 new stores over five to six years was a "compelling dynamic" in the offer.

It has valued the stock at A$1.80 ($2.25), within the float's target price of A$1.65 to A$1.90.

The company's earnings before interest and tax (ebit) margins of over 20 per cent were higher than other retailers, the Wilson HTM note said.

It expected ebit to grow at around 13 per cent a year over the next three years. However it also expected the ebit margin to deteriorate over time.

Although Kathmandu relied on the three sale periods of winter, Christmas and Easter it still sustained gross margins of over 60 per cent.

The company spent up to 6.5 per cent of sales on marketing and branding which was high, but it needed to do this because it did not spend on higher rents for better-positioned stores to ensure foot traffic.