KMD - Kathmandu

[winner69]

I am having some difficulty reconciling the $60 mil EBITDA with the $8 mil profit. There is $20.9 mil debt servicing on a debt of $187 mil, but where is the other $32 mil of EBITDA?

The 08 accounts had EBITDA at $37.9m - less D and A of $4.3m less I of $21.0m less tax of $4.6m gave NPAT of $8.0m

It was quoted above that F09 EBITDA would be $42m which sort of implies maybe NPAT around $11-$12m

Where did you $60m EBITDA come from JR?

They had better do a magic -- say EV of 6 times EBITDA would give a valuation of $250m but heck last accounts said about $200m of debt ... which doesn't leave much for equity does it

Better make it 10 times EBITDA then to make it respectable ... easy as

[J R Ewing]

The 08 accounts had EBITDA at $37.9m - less D and A of $4.3m less I of $21.0m less tax of $4.6m gave NPAT of $8.0m

It was quoted above that F09 EBITDA would be $42m which sort of implies maybe NPAT around $11-$12m

Where did you $60m EBITDA come from JR?

They had better do a magic -- say EV of 6 times EBITDA would give a valuation of $250m but heck last accounts said about $200m of debt ... which doesn't leave much for equity does it

Better make it 10 times EBITDA then to make it respectable ... easy as

There is an article on stuff that says:

"Kathmandu is understood to produce (EBITDA) of about $60m." In the same paragraph it talks of the $8m after tax profit. That is hard to reconcile - perhaps the $60m is a forecast?

As you point out they will need to get this EBITDA well above $38m in order to leave significant equity based on a rational multiple of 5 or 6. I wonder how much of the capital raised is going into debt reduction and how much is going to the existing shareholders?

[cycat64]

Kathmandu is owned by three Private Equity Funds (GSJBW's Hauraki No.2 (25.5%) and Trans Tasman Fund 07 (24.5%) and (I think) 50% Quadrant). I invested $100,000 in the first of these over the period 2004 - 2007. Their first investment was Norfolk Group which was floated a couple of years ago on the ASX at about $1.90 a share. A lot of the same questions and issues that are outlined above were asked and mulled over then, but the bottom line is that over 2007-2008 I received deposits in my bank account totalling about $220,000. The return so far on the investment is 10x and they still own 20% (the share price incidentally is about $0.78 at the moment but has ranged between $2.20 and $0.21 since the float from memory) and there are a couple of other groups building stakes. The second investment was Bild NZ (Acrow Scaffolding and Dominion Constructers) but they have lost their shirt on that one. The third, Vision Senior Living Retirement Villages is looking somewhat dicey but management seem to be over the moon over the success of Kathmandu (especially the roll-out of stores in Britain). I disagree strongly with some of the earlier comments. I love fossicking through their stores and their stuff is high quality and attractive. Moreover, the brand appeals to the young and wealthy and their stores (often off the beaten track) are very well patronised, especially during the sales where there can be standing room only. The model needs to be considered also as they are a little different. They have control over everything from design, manufacture to in-store sales (and soon to go on-line). While I appreciate the concerns expressed about IPOs in this environment, especially by Private Equity, I am not complaining. I expect an IPO on the ASX and while the environment is much different to when Norfolk was floated, the power of high leverage and good luck may result in another windfall. There are other ways to make money than sharetrading but Private Equity involves risk, good fortune and willing buyers in an IPO with nowhere else to put their money.

[Placebo]

Hi Cycat,

Good post, some good observations. I am left wondering how you, as an investor in Hauraki, are left feeling with them in effect selling off the family silver, leaving themselves only with (in your words) investments they have "lost their shirt" on and "looking somewhat dicey".

I wonder how other private equity funds fare, what their success rates are. If they are like this, can you really blame them for ramping and spinning the living hell out of the stuff they take back to the market?

[cycat64]

To get involved with a Private Equity Fund usually requires a fair amount of money. In the case of Hauraki No.2 the minimum contribution from memory was $20,000 but in the case of a later one I am aware it was in the region of $500,000 and for 'selected' clients only. It is an area of high risk and patience. In the case of Hauraki No.2 we are halfway to the wind-up deadline of 10 years. Prior to Hauraki No.2 the Hauraki No.1 fund was wound up after about 6 years and returned an impressive result to investors. A typical fund will take on about 4 - 10 investments. The attrition rate is high and on average about 20% of investments go down the gurgler, but it often requires only one to perform well and you get the money back. This was the case with Norfolk and the No.2 fund. There are lots of funds about, especially Australian ones, but in NZ the Direct Capital and Pohutukawa funds have done well (the new Maui Capital group may also be worth following). When committing money to these funds you have to be prepared to lose the lot, but you are also gaining access to the talents of the 'get rich quick' boys. These people are generally multi-millionaires who have come up through the investment banks and who move ruthlessly and single-mindedly to maximise their investments. Their ambition and greed becomes your gain or your loss. These people are far too talented to limit themselves to mundane jobs such as executives in the big name companies and prefer the thrill of the chase. Placebo asks how I feel about the 'family silver' ie. Kathmandu, being flogged off. Well, I feel real good, because I might just get that part of my money back and maybe some more to boot. The intention when Kathmandu was bought was to add value to it and then screw the investing public off in an IPO within a medium time frame (a la Guiness Peat). It may be a case of 'buyer beware' but as one of the sellers I have no qualms or regrets about it. Meanwhile, can I interest you in a retirement apartment ?

[glennj]

I see in the Hauraki No2 report;
"Kathmandu is currently finalising its full year result to 2009, which will represent an approximate 50% increase over FY08."
Looking even better than expected.

[Placebo]

To get involved with a Private Equity Fund usually requires a fair amount of money. In the case of Hauraki No.2 the minimum contribution from memory was $20,000 but in the case of a later one I am aware it was in the region of $500,000 and for 'selected' clients only. It is an area of high risk and patience. In the case of Hauraki No.2 we are halfway to the wind-up deadline of 10 years. Prior to Hauraki No.2 the Hauraki No.1 fund was wound up after about 6 years and returned an impressive result to investors. A typical fund will take on about 4 - 10 investments. The attrition rate is high and on average about 20% of investments go down the gurgler, but it often requires only one to perform well and you get the money back. This was the case with Norfolk and the No.2 fund. There are lots of funds about, especially Australian ones, but in NZ the Direct Capital and Pohutukawa funds have done well (the new Maui Capital group may also be worth following). When committing money to these funds you have to be prepared to lose the lot, but you are also gaining access to the talents of the 'get rich quick' boys. These people are generally multi-millionaires who have come up through the investment banks and who move ruthlessly and single-mindedly to maximise their investments. Their ambition and greed becomes your gain or your loss. These people are far too talented to limit themselves to mundane jobs such as executives in the big name companies and prefer the thrill of the chase. Placebo asks how I feel about the 'family silver' ie. Kathmandu, being flogged off. Well, I feel real good, because I might just get that part of my money back and maybe some more to boot. The intention when Kathmandu was bought was to add value to it and then screw the investing public off in an IPO within a medium time frame (a la Guiness Peat). It may be a case of 'buyer beware' but as one of the sellers I have no qualms or regrets about it. Meanwhile, can I interest you in a retirement apartment ?

Ha ha! Nice Cycat. Appreciate the candid response

[J R Ewing]

I see in the Hauraki No2 report;
"Kathmandu is currently finalising its full year result to 2009, which will represent an approximate 50% increase over FY08."
Looking even better than expected.

That could equate to an EBITDA for 2009 of $60m. Assuming a multiple of 6, and that debt is still $187, that gives an EV of $173m.

Obviously you would need to look at how they got to the EBITDA figure, a 50% increase over the last twelve months is (as you say) "better than expected".

I would be keen to see the proposed debt post IPO...

[Yossarian]

That could equate to an EBITDA for 2009 of $60m. Assuming a multiple of 6, and that debt is still $187, that gives an EV of $173m.

Obviously you would need to look at how they got to the EBITDA figure, a 50% increase over the last twelve months is (as you say) "better than expected".

I would be keen to see the proposed debt post IPO...

I think in your example the EV is $360m - i.e. value excluding debt. cheers

[winner69]

I think in your example the EV is $360m - i.e. value excluding debt. cheers

I think you both know what you meant to say but not quite clear

Say EBITDA $60m ... EV on a multiple of 6 is $360m

If as JR assumes debt left in the business is $180m then they could float the equity for $180m (say 180 million shares for a $1) and everyhting would look respectable and attractive

Easy as ... nice round numbers and only 50% debt in the floated as well

But I think they will want a higher valuation of $360m