Private equity unchains MotorCycle SIMON HERMANN THE AUSTRALIAN...

Private equity unchains MotorCycle

• SIMON HERMANN
• THE AUSTRALIAN
• APRIL 19, 2016 12:00AM

The motorcycle dealership industry in Australia is characterised by privately owned individual dealership operators, often operated by motorcycle enthusiasts.
This highly fragmented landscape has created a competitive environment but also the opportunity for consolidation.
Only a few dealers operate in multiple locations, with one of the exceptions being MotorCycle Holdings Limited.
MotorCycle Holdings Limited was founded in 1989 and currently operates 34 franchises in 24 locations across Australia.
The company is focused on motorcycle dealerships and is engaged in the sale of new motorcycles and accessories as well as finance, insurance and warranty solutions.
MotorCycle Holdings has relationships with some of the most well-known brands in the industry such as BMW, Harley-Davidson and Yamaha.
MotorCycle hopes to raise $46.3 million through the issuance of 23.1 million shares at $2 each.
The initial public offering is a private equity sale, with the Archer Growth Fund selling down stock worth $26m to realise part of its investment. The remaining proceeds will be used to strengthen the balance sheet by paying back debt.
MotorCycle Holdings is cashflow positive and revenue has increased at a compound annual rate of 8 per cent since the 2013 financial year.
Three years ago sales totalled $158.7m and for FY16 management has targeted $212.8m in sales and $7m in net profit.
The company has a strong market position in a highly fragmented industry and management plans to grow organically and via acquisitions.
Subject to performance, investors should expect fully-franked dividend distributions from 2017 onwards.
The existing income portfolio of its franchises, MotorCycle’s revenue growth trajectory and strong market position are attractive qualities.
Principal hurdles include integration and supply chain risks.
Organic growth as well as expansion of its franchise network is the near-term catalyst and with management targeting the distribution of dividends, the float offers an attractive mix of income and capital growth.
Company: MotorCycle Holdings Limited
ASX Code: MTO
Shares on Offer: 23.1m
Listing Price: $2
Market Capitalisation: $75.9m
Listing Date: April 29
Simon Hermann is an analyst atwise-owl.com.