Analysts offered mixed recommendations for the Teavana Holdings IPO now scheduled for Thursday. The Atlanta-base tea retailer expects to generate $100 million on sales of 7 million shares.
The stock debutes in the busiest week for IPOs since 2007. The Wall Street Journal reports a dozen openers with Dunkin’ Donuts’ $400 million offer taking the limelight. Teavana (NYSE: TEA)is pegged to open between $13 and $15 per share.
“At the price range mid-point of $14 TEA should be considered a buy, and we expect TEA to rise in the IPO aftermarket, even though most of the IPO proceeds are going back to shareholders,” reports stock pick website which named Teavana its IPO Pick of the Week.
The Street’s Tuesday featured a segment with analyst Debra Borchardt who told the audience “I’m no so sure Americans are going to warm up to a tea franchise.”
Guest Francis Gaskings, President of IPO Desktop, praised Teavana’s 9.4 percent profit margins, the same as Starbucks. He said a the firm’s P/E ratio of 40 is comparable to Peet’s Coffee and Tea. “I think it is a quality stock but it’s high priced so they will have to do what they say.”
At $15 per share the company would reap $123,214,305 from its IPO. Lead underwriters Bank of America Merrill Lynch and Goldman, Sachs & Co. will open offers on Thursday. Others marketing shares available include Morgan Stanley, Piper Jaffray, William Blair and Stifel Nicolaus Weisel.
The to the original SEC registration filed on Apr. 28 lists 8,214,287 shares of common stock of which 6 million are offered by selling shareholders including the founders, senior executives and investment firms seeking recover their initial seed money. Exercising the over-allotment option at top dollar would give the firm a valuation close to $550 million.
IPO-focused websites are evaluating the pros and cons. The majority support a buy. As the American tea industry’s first retail merchant to go public, the chain represents an important bellwether. Teavana set the bar with sales approaching $900,000 per 900-sq. ft. store. The number is sufficiently enticing for investors and proof that retail tea merchants can top $1 million in sales, a threshold that will spur on the competition.
A successful IPO will lead to construction of 340 Teavana stores in the next three years, according to the filing. The Atlanta-based chain, founded in 1997, operates 161 company-owned stores in 35 states with 19 franchises located mainly in Mexico. Net income during the 2010 fiscal year was $12 million on $124.7 million in sales which are up 126 percent compared to FY2009. According to filing, shops averaged almost $1000 a square foot in sales and contributed $886,000 per store based on transactions averaging $36 each. About 7 percent of total sales are online.
Sales of $134 million for the 12 months ending May 1 demonstrate the firm’s continued growth. According to the S1 filing, founder Andrew T. Mack and his wife hold 69.5 percent of the company’s common stock. SKM Partners, LLC, which bought out an early private investment firm owns 23.9 percent of the company. Total assets are $64 million as of Jan. 31, 2011.
One at 24/7 Wall St. criticized how the offer is structured.
“The Teavana team has decided to somewhat adopt the same model of some of the recent Web 2.0 offerings with a very low float at the IPO and with founder majority control long after the IPO. Of the 7.1+ million shares being offered, the company itself is only offering 1,071,429 shares and the selling stockholders are offering an additional 6,071,429 shares. On top of that, only about 15 percent of the authorized shares will be in the float as it lists its authorized share count as 38,040,518 shares,” writes analyst Jon C. Ogg.
Ogg estimated the market cap at $532 million at a $14 per share mid-point.
“That is not really a problem on its own when considering the rest of the IPOs we have seen, but the notion that the float is so small, and that the founder and the financial backing fund own more than 70 percent of the float, and that only a small fraction of the shares coming to market are going to be for the benefit of the company all combine into a scenario that is just not very favorable for the shareholders at the initial public offering,” concludes Ogg.