Street Talk
Jun 29, 2020 – 7.09pm
Australia’s second-largest furniture retailer, Greenlit Brands, is ramping up plans to spin off and float one of its biggest businesses.
Analysts reckon Fantastic Furniture could be worth $400 million to $600 million. Ruth Hartmann
Street Talk can reveal Greenlit Brands, which is owned by Steinhoff, has called investment banks to pitch to float Fantastic Furniture, which makes and sells mass market lounges, dining suites, beds and the like.
It is understood Greenlit sent a handful of investment banks a request for proposal and has asked for written responses this week.
Greenlit wants to know their thoughts on how an initial public offering should be structured, who they think would be interested in buying shares and at what price.
Analysts reckon Fantastic Furniture could be worth $400 million to $600 million, based on market share data and estimated sales and margins.
A well known face to small cap investors
Should Fantastic Furniture hit the ASX boards as planned, small cap fund managers would go into the IPO marketing process with a pretty good understanding of the business.
While Fantastic’s brand is well known among the general public, small cap investors followed the company closely during its 15-plus year stint on the ASX boards.
That listed run only ended in December 2016, when Steinhoff International acquired the business for about $350 million on an enterprise value basis.
Since then, Fantastic has been wrapped up in Steinhoff, which has undergone radical restructuring locally. Steinhoff Asia Pacific was separated from its parent, Steinhoff International, and rebadged Greenlit Brands.
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Greenlit is the combination of Steinhoff Asia Pacific and Fantastic Furniture and includes furniture retailers Fantastic, Plush and Freedom and bed sellers Snooze and Original Mattress Factory.
Greenlit reported $49.6 million underlying earnings in the year to September 30, according to accounts filed with ASIC, on $1.02 billion revenue. It reported a $288 million loss, after booking large restructuring costs and writedowns.
Bankers – and investors, should it push ahead with the listing plans – are expected to compare it to Nick Scali, which is well understood by small cap fund managers.
Nick Scali shares are trading at 8.4 times trailing EBITDA and 11.6 times expected EBITDA, according to S&P Global Market Intelligence data.
A tumultuous few years
The float deliberations come after a tumultuous few years for Greenlit, which was separated from the debt and accounting scandal-riddled Steinhoff International.
The business was first separated from its parent under the name Steinhoff Asia Pacific Group Holdings, before rebadging the holding company Greenlit Brands. Greenlit now has about 300 stores, 3800 employees in Australia and New Zealand and eight manufacturing sites, according to the company’s website.
Greenlit has considered sale and/or float options in the past few years, however its decision to send a request for proposal to investment banks for Fantastic suggests it is finally serious about pursuing a listing.
Interestingly, the company spent $86 million to acquire a bunch of trademarks from Steinhoff International last financial year, which gave it unfettered ownership and use of its brands.
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