kmd great potential

Kathmandu on shopping list

The Australian November 10, 2009

RESEARCH house Wilson HTM has offered strong support for next week's listing of camping and outdoor wear retailer Kathmandu, which is looking to raise $375 million.

The firm has placed a buy recommendation on the company, valuing the shares at $1.80 with a target price of $2.05.

Owners Goldman Sachs JBWere and Quadrant Private Equity are offering 197 million shares priced between $1.65 and $1.90 each, valuing the retailer at a multiple of between 13 and 15 times projected 2010 earnings.

Wilson HTM analyst Jacqueline Fernley said the emphasis on activities to promote health and fitness meant the market for Kathmandu's products was likely to grow.

The company estimates it has 60 per cent market share in New Zealand and 30 per cent in Australia. "The compelling dynamic in this initial public offering is the store rollout potential of the business, with the store count as at the end of financial year 2009 at 82, with the rollout expected over the next five to six years reaching 152," Ms Fernley said.

Despite Myer's return to the stock exchange at a big discount to its offer price last week, and Kathmandu founder Jan Cameron's plans to create a trans-Tasman rival chain of cut-price adventure product stores, lead managers Goldman Sachs JBWere and Macquarie Capital are confident the appetite of investors for the equities market has been rekindled. Ms Fernley said Kathmandu spends between 5 and 6.5 per cent of sales on marketing,which is high compared with other retailers.

"By all accounts the product strategy of Kathmandu actively focuses on constant innovation, a good, better, best product hierarchy and specialised ranges," she said.

The final price of Kathmandu's float will be set by an institutional book build that opens today and closes tomorrow.