Baby Bunting Group Limited (ASX:BBN)
made a strong debut on the Australian stock exchange on Wednesday 14 October. The baby retailer commenced trade on the ASX at 11:00am AEST. The stock opened at $1.965. By 11:05am, shares in Baby Bunting retailer had reached $1.995, a 42.5 percent gain on the issue price of $1.40.
The ASX advised market participants that Baby Bunting had raised approximately $51.6 million via an initial public offer of fully paid ordinary shares. The raising closed oversubscribed. The listing price provides Baby Bunting a market capitalisation of $246.8 million.
IG Market Analyst Angus Nicholson noted the fortuitously timed IPO was likely to be well received. “With global volatility subsiding noticeably of late and investors keen to get in on growth names,” he said.
Baby Bunting has a clear growth strategy. The company currently has 33 stores across the country. Management intends to hold 70 stores in the medium term, opening between four and eight new operations each year.
Nonetheless the retailer has acknowledged the risks its ambitious growth plans hold. Baby Bunting advised shareholders “Any delays or failure to open new stores are likely to significantly limit the company’s ability to realise its growth initiatives.”
Australia’s baby goods market is a notoriously fragmented $2.3 billion sector. Retail chain Babyco was placed in voluntary administration in 2009. In 2013, Mothercare Australia entered administration after its sale to the Myer family fell through.
Angus Nicholson points to Baby Bunting’s compound average growth rate of 23.9 percent in sales over the past six years, supportive of the company’s strong and growing brand. “Baby goods are a very high margin business and greater consolidation and expansion will allow them to steadily increase margins over time, supporting earnings growth.” He added.
Baby Bunting’s Chief Executive Officer, Matt Smith is a former Kathmandu executive who joined the company in 2012. Mr Smith expects sales of $218.6 million and earnings before tax of $16.3 million this financial year, compared with $12.4 million the previous period.
Funds manager TDM Asset Management has retained a 30 percent holding in Baby Bunting. Founders Arnold and Gail Nadelman hold 6.1 percent.
The company will commence its first day of trading on a normal basis on Friday 16 October.