JDE Peet’s IPO: Classic Story, Classic Investment Case

JDE Peet’s IPO: Classic Story, Classic Investment Case
Averyanovphoto / Pixabay

Alex Gavrish discusses JDE Peet’s IPO

Previous IPO we discussed was TeamViewer AG which started trading on September 25th, 2019. Teamviewer priced its IPO at EUR 26.25 per share, with Permira funds selling a 42% stake in the company.

Get Our Activist Investing Case Study!

Get the entire 10-part series on our in-depth study on activist investing in PDF. Save it to your desktop, read it on your tablet, or print it out to read anywhere! Sign up below!

Q1 2020 hedge fund letters, conferences and more

This Value Fund Is Well-Positioned For The COVID Recovery

DG Value Partners II, LP Class A was up 1.36% net for May, while Class C returned 2.56%. Class A has returned 18% net so far for 2021, while Class C is up 34.5% net for the first five months of the year. DG Capital touts itself as "experts in middle market event-driven investing." The Read More

Since our recommendation on October 23, 2019 shares of TeamViewer performed extremely well (both before and especially after COVID-19 crisis developments). At the current market price of about EUR 46 per share, shares returned 95%.

JDE Peet's IPO

We believe that the recent IPO of coffee maker JDE Peet’s provides investors a classic story and classic investment opportunity.

JDE Peet’s started trading at Euronext on May 25, 2020. Company raised approximately EUR 700 mil by issuing 22.2 mil new shares while existing shareholders sold an additional 49.2 mil shares at an IPO price of EUR 31.5 per share. Funds managed by Soros Fund Management LLC have subscribed for an aggregate amount of EUR 761 million, taking approximately 33% of IPO shares.

Mondelez international will retain a 23.4% stake while Acorn Holdings (JAB) will retain a 62.2% stake. JDE Peet's free float post IPO will therefore be 14.4% percent only.

At the current market price of EUR 37 per share, the company has a market capitalization of EUR 18.3 billion and an Enterprise Value of about EUR 24.1 billion, valuing the company at an EV/Adj EBITDA multiple of x15. Assuming a 70% free cash flow conversion rate (according to IPO prospectus), JDE Peet’s has a Free Cash Flow Yield of 6.15%.

Soros Fund Management's Participation Makes JDE An Attractive Investment

We believe that participation of Soros Fund Management in the IPO (33% of IPO shares), low free float, reasonable valuation multiple and attractive free cash flow yield make JDE Peet’s shares an attractive investment.

In addition to this, current dislocations in the market due to COVID-19 crisis make the company extremely attractive due to the defensive nature of its products and sector. Investors do not have many investment opportunities of such kind in the current market environment, and we believe that shares warrant a higher valuation multiple. Expansion of valuation multiple to x18.5 and an annual growth of 5% in Adj EBITDA could value the shares at EUR 65 in three years, providing a 75% upside potential or an approximately 25% annual return.

Article By Alex Gavrish, Etalon Capital Ltd; author of "Story Investing"

Previous article COVID-19 Puts AI M&A In The Spotlight
Next article Colleges Don’t Need Liability Protection To Open
Alex Gavrish is a founder and CEO of Etalon Capital Ltd. Alex was born and grew up in Kiev, Ukraine, then part of the Soviet Union, and immigrated to Israel at the age of 18. He is the author of three books: Wall Street: Back to Basics, which explains how investors can achieve greater success in managing their investments and make better investment decisions. In his second book Story Investing he proposes to look at companies and stocks as stories, and shows that the narrative mode of thinking is complementary to analytical one and not its enemy. Using techniques and insights from storytelling and fiction literature, investors can be more creative and finally practice the art part of investing. Time Investing is an effort to better understand time – one of the most difficult aspects of the investment practice. Alex has an MBA degree from Technion, Israel.

No posts to display