The Baby Bunting Group IPO is set to float on the ASX on 14th October 2015. How will investors respond?
Up until the turn of the decade, Australia was one of only two Organisation for Economic Co-operation and Development (OECD) countries without a national Paid Parental Leave scheme. The anomaly was subsequently addressed by the Gillard Government in 2011, which introduced 18 week payment programs on a means tested basis. As the $1.7billion program nears its fifth anniversary and attracts increasing fiscal scrutiny, what impact has it delivered for the economy?
Since its introduction, the ratio of female labour force participation has improved from approximately 83 females per 100 males to 85 females per 100 males. Whilst the expansion suggests more than 100,000 additional women subsequently joined the workforce, attribution to the paid leave policy is challenged by a generally uptrending female labour force participation rate over the decades. Nonetheless, the extra disposable income made possible by paid parental leave has provided a positive environment for the coming listing of Baby Bunting Group.
Originally founded in 1979, the Australian specialty retailer has grown to become one of the largest participants in the nation’s $5billion baby goods industry. Its network of 33 stores is 50 per cent greater than the nearest competitor, and only two other Companies hold more than three stores. Industry fragmentation has prevailed following the administration of Mothercare Australia in 2013, which at its peak operated more than 50 stores under the Babies Galore and Mothercare brands.
Whilst Baby Bunting’s Initial Public Offer represents a partial sell down by existing shareholders, there remains strong impetus for new investors. The Company is on course to post its third consecutive period of increasing sales, earnings, and profit margins. To sustain the trend, Baby Bunting has plans to double its store network, and enhance brand awareness in key east coast markets. The expansion may also drive online sales, which grew 59 per cent in FY15.
Primary operational risks surround its capacity to procure new store sites. Baby Bunting stores are typically 1,500 to 2,000m2, or 3-4 times larger than the failed Mothercare Australia model. Hence Baby Bunting’s pram friendly size appears to be a driver of its success and a future real estate challenge. Other risks surround a significant unallocated free float, which could impact early trade, however overall the outlook appears positive for investors seeking capital growth potential and income.
Company: Baby Bunting Group Ltd
ASX Code: BBN
Shares on Offer: 37.2million
Listing Price: $1.40
Market Capitalisation: $175.8million
Listing Date: October 14th
Author: Tim Morris
Oct 07, 2015
Having studied Commerce and Science at the University of New South Wales, Tim began his career in an analytical capacity with Wise-owl. Tim has conducted over 500 corporate valuations and appraisals, specialising in pre revenue assets and emerging markets. For the last five years, his Equity Capital Market insights have been featured as part of a weekly column in The Australian and regularly features on Sky News, CNBC, ABC and Bloomberg TV.