Stock Takes: Allbirds IPO – when will Kiwis be able to get a share of the shoemaker?

News this week that Allbirds – the sneaker company co-founded by ex-All White Tim Brown – is to list on the Nasdaq already has Kiwis keen to get in on the action.

Kristen Lunman, general manager of investment platform Hatch, said within four hours of the announcement it already had more than 1000 New Zealanders who had registered their interest in buying shares.

“It’s similar to Rocket Lab,” she said. “We had about 2500 over the course of month and we have had 1000 in four hours [for Allbirds].”

That doesn’t mean all those investors will buy shares in Allbirds but certainly some will.

Lunman says the listing is likely to be about a month away.

“Usually how an IPO [initial public offer] works is they file and then there is two weeks where nothing can happen. So nothing will happen for the next two weeks.

“Then they start the roadshow and that can last anywhere up to two weeks and during that roadshow is when they are getting interest from institutional investors – they are determining the price range and only once that is completed and a price is settled on is when they submit the final prospectus and go public.”

Retail investors will have to wait until the listing before they can buy shares.

“Before it lists is not on the cards at the moment and that is because access for retail investors to participate in IPOs is very, very new. The first instance of that from a US listing was Robinhood and they gave 35 per cent to their own investors and that was really breaking ground.”

Lunman said there had been a lot of discussion about the fact that retail investors were at a huge disadvantage because they couldn’t get in through the IPO process, especially after the Snowflake IPO, because the IPO price was half of what the company ended up listing for.

“There has been a real sense retail investors haven’t been able to benefit from these.”

She said over the past year the rise the retail investor meant there was change happening, but it took time. “I think we will probably start to see it roll out in the US and will get comfortable with that. It’s just going to take time to reach us.”

Risky investment

Allbirds’ SEC filing makes it clear that it will be a high-risk investment. “Investing in our Class A common stock involves a high degree of risk,” it says at the start of a description of the risks the company faces – which goes on for 44 pages.

The company has not made a profit and will not do so any time soon.

“We have incurred significant net losses since inception and anticipate that we will continue to incur losses for the foreseeable future.”

Allbirds lost $14.5 million in 2019 and widened that to $25.9m in 2020.

Lunman said some investors were not happy about investing in companies that were notprofitable. But others recognised that there are a number of high-growth companies that list and often don’t make a profit for some time.

“Xero was an example of this – you recognise that this is a company in an early stage growth period and they require huge amounts of capital to expand, so what you want to see as part of that is why? And where is this injection of capital going?”

She urged potential investors to read the prospectus closely.

“I think a lot of people are scared, you open that document and it’s ugly and it’s scary, but it is really easy to navigate. Don’t make your decision until you read that prospectus.”

Reporting season report card

Analysts have largely given the recent company reporting season a thumbs-up, with the exception of a handful of stocks which proved to be on the disappointing side.

Harbour Asset Management’s Shane Solly said there were about two hits for every miss when it came to the results, and where companies had missed expectations, it was by a small amount.

But he said the outlook statements were mostly cautious due to Covid-19, ongoing labour shortages, supply chain issues and rising input costs.

“In general it was better than the last results season. Balance sheets are in good order.”

One stock which did disappoint was a2 Milk. “It didn’t provide the certainty that people had been hoping for. It was a bit of ‘are we there yet?’ with hitting the bottom.”

Solly said Sanford had also disappointed although this week’s share purchase by Ngāi Tahu had helped to push its share price up again.

There were also a few companies where there were concerns that this result might be as good as it gets. “Fletcher Building being one.”

Adrian Allbon, director of equity research at Jarden, said on balance most of the results were positive.

“The couple of stocks that stand out for us – Fletcher Building, which had had a good run into the result produced a solid result and was also talking about a solid outlook – strangely was quite weak in the price performance. Part of that may be it is lockdown-exposed, that is one anomaly for us.”

Allbon was also disappointed with a2 Milk. He said the fourth-quarter performance was at the bottom of the range and softer than Jarden’s, and the market’s, expectations.

“The other key change is the new chief executive, while resonating and communicating well is definitely elevating some of the macro headwinds a lot more than previous communications out of the company – falling birth rates in China, re-engaging with Daigou … are all more front and centre.”

But he said the silver lining in the result was the brand’s health, which appeared to remain solid.

“While their revenues were weaker than expected in fourth quarter, their market share and some of the sell-out rates were materially strong, which does give some confidence that the brand is still healthy from a demand perspective and sales are more of a channel and inventory issue.”

Allbon said the August share performance had been quite concentrated at both ends, with 10 stocks that rose by more than 10 per cent and two stocks which fell more than 10 per cent.

Z Energy, Ryman Healthcare and Summerset were the top share price performers over August, with Z driven by a potential takeover offer from Ampol and Summerset reporting a very strong result.

Synlait Milk and Sanford were the two that saw shares prices down more than 10 per cent, although Sanford’s has since bounced back.

Allbon said Synlait was reflecting high debt and a weak a2 Milk result. “Sanford had a profit warning.”

He said a2 would have been worse, but it started the month weak, picked up and then fell again.

Despite having results in line with expectations, Allbon said the power companies didn’t move much, meaning they got left behind by the market.

He said a review of the sector as a whole, driven by the power cuts on August 9, was hanging over the industry.

What now?

Post results season, companies often use this period as time to raise capital.

Allbon said most listed companies were well-capitalised and did not need to raise capital this time, with the exceptions to that being Air New Zealand – which has pushed its capital raising into next year – and possibly Synlait or Sanford.

Synlait had refinanced but still had high debt and faced high earnings volatility due to its a2 Milk link.

“That looks well taken care of this time around. Companies do have a lot more confidence and reopening experience now and they are looking at vaccination rates on the other side.”

The other window that remains open until the Christmas holiday season is for initial public offers.

Vocus’ NZ business and 2Degrees are both still being talked about as likely and would not be put off by the Covid-19 lockdown.

“I think we are in a period where we are reticent to move quickly out of defensive stocks because of the nature of the Delta virus but we have also got an eye on fact that the Delta virus has accelerated vaccination efforts and vaccination is the new passport back to normalisation or reopening.”

Singing its praises

While Harmoney shareholders seemed less than impressed with the company’s annual result this week, Jarden analysts continue to sing its praises.

Shares in Harmoney fell from $2.06 at Monday’s close to $1.99 after it revealed a cash net loss of $400,000 and an 8 per cent drop in its income to $79.1m.

But Jarden continue to rate the stock a buy, with a target price of A$3.30 or $3.43 in local currency.

Its analysts say Harmoney’s market capitalisation of about $201m appears to be attributing minimal value to its rapidly growing Australian business and say its NZ loan book alone justifies a higher valuation when compared with its peer group.

“We view Harmoney as a leading digital personal lender in the A$162 billion ANZ [Australia and New Zealand] consumer credit markets and believe its transition from a peer-to-peer to a lower cost warehouse-funded model, combined with its innovative markets strategy and repeat customer programme, see it well positioned to capitalise on the ongoing structural shift towards non-bank lenders.”

Harmoney is forecasting 20 per cent growth in its loan book to $600m for the 2022 full year and revenue of at least $92m, as well as an increase in its net lending market by at least 0.2 per cent.

Jarden analysts said they viewed the guidance as conservative given Harmoney’s strong originations momentum and strong record of recurring customer revenue.

But key risks remain from a prolonged Covid impact in Australia and the availability of wholesale funding to facilitate loan growth.

Latest gimmick

Australian retail investment platform Stake is doing its darnedest to attract Kiwis to use its services.

A few weeks ago it teamed up with a Kiwi brewery to produce an IPA beer in celebration of Rocket Lab’s IPO and this week it is even trying to get in on Covid-19.

Stake is offering $20 in Pfizer stocks to every new sign-up to its platform who shows their vaccination card, or a booking email to prove they’ve had the jab.

Matt Leibowitz, CEO and Founder of Stake, says since New Zealand has been locked down again it has seen an 80 per cent increase in new sign-ups.

“With so many new sign-ups, we’ve tried to come up with a way that will not only give new investors a taste for pharmac stocks, but we hope we’ll also help contribute to driving vaccination rates as well.”

The platform has around 40,000 New Zealand members.

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