Dick Smith flat after underwhelming debut
In its much anticipated sharemarket debut on Wednesday, Dick Smith was unable to generate the kind of fanfare that has surrounded new listings this year.
Shares in Dick Smith Holdings opened as high as 5.5 per cent above the initial public offering price of $2.20, but quickly fell into the red before closing the day flat at $2.20.
In November last year, private equity firm Anchorage purchased Dick Smith, and its 325-store network, for $94 million from Woolworths.
At an IPO price of $2.20 a share, Dick Smith was valued at $520.3 million - an increase of more than 400 per cent on a year ago. Much of that increase will be based on investors' interpretation of the company's forecast $40 million net profit this financial year.
"There has been significant transformation over the past 12 months," said CIMB analyst Daniel Broeren. "Significant cost cutting that was largely around store labour, marketing and also supply-chain costs, and that's largely where the improvement in earnings has been derived from."
Last financial year, Dick Smith reported a profit of $6.7 million, but in the first quarter of this year it reached $6.1 million.
But sales are forecast to fall from $1.3 billion last financial year to $1.2 billion. With forecasts of net profit at $40 million and total net revenue of $1.2 billion, Dick Smith will be running a net profit after tax margin of 3.9 per cent this financial year.
"There are questions around the perception of the [Dick Smith] brand, what it stands for in this market versus some of its competitors," Mr Broeren said.
"Clearly, JB Hi-Fi is the leader on price. Good Guys, you could put them in the same category, they're both leaders on price. You couldn't say that Dick Smith leads on range either."
But based on store openings and further cost reductions, Mr Broeren said sales growth could increase by 8 per cent in 2015.
The company's prospectus said that Dick Smith's directors intend to pay out approximately 60-70 per cent of net profit for the 2014 financial year.
The dividend would be paid in October.
In the IPO, 66.2 per cent of Dick Smith was sold, with Anchorage holding on to 47.3 million shares, or 20 per cent.
Existing owners will hold on to the remaining shares.