Most Kathmandu shares will go to Oz

Fairfax Media

AN IPO: It will be NZX's first float in two years but more than three quarters of the shares offered in Kathmandu look set to go to Australian investors.

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It will be NZX's first float in two years but more than three quarters of the shares offered in outdoor equipment and clothing retailer Kathmandu look set to go to Australian investors.

Fund managers on both sides of the Tasman Sea are being wooed this week as Goldman Sachs JBWere and Macquarie, lead managers of the Kathmandu float, sound out investors on demand and pricing.

The Independent understands Kathmandu's owners, Goldman Sachs JBWere and Australia's Quadrant Private Equity, are likely to sell at least 75 per cent of the firm as they seek a valuation of about $450 million. How much of the money raised, if any, will be reinvested in Kathmandu is unclear.

The float, expected before Christmas, will be NZX's first initial public offering since New Zealand Farming Systems Uruguay in December 2007. However, at least three quarters of the shares are likely to be sold in Australia where listed companies typically attract higher valuations and shares are being offered extensively through retail investment networks.

Despite this, the sellers are likely to punt for a dual primary listing on both the New Zealand and Australian sharemarkets. A primary listing in Australia and secondary listing here could mean Kiwi investors miss out on imputation credits on dividends.

One fund manager, who declined to be named, felt Kathmandu had a ''stellar'' growth track record with more potential for store roll outs in Australia. However, the availability of imputation credits would be key to his decision on whether to buy in.

Another fund manager, who also declined to be named, said with no prospectus yet available it was hard to value the business.

It was being marketed as Australasian, a decent brand and store roll out business, he said. The plan was to trial it overseas  Kathmandu already has seven British stores  and if it worked, great. If not, the stores would be shut to prevent Kathmandu becoming a "Pumpkin Patch-type loss maker'', the fund manager said.

He described Kathmandu, whose competitors include the likes of Mountain Designs, Macpac, Gore-Tex and Bivouac, as an interesting retail play.

Founded by Jan Cameron in 1987, Kathmandu has 84 stores with 45 in Australia and 32 in New Zealand. Goldman Sachs JBWere and Quadrant Private Equity bought the firm, which then had 46 stores, from Cameron in 2006 in a deal that valued Kathmandu at $275m.

In Australia, Kathmandu is being marketed as being better value than the much bigger Myer float. Myer's shares are being offered at an indicative price range of between A$3.90 and A$4.90 each, which values the department store chain at between 14 and 17 times forecast earnings.

The Independent understands Kathmandu may be priced at between 12 to 13 times forecast earnings.

Kathmandu maintains its "vertically integrated'' business model across product design, manufacturing and store network, enables it to produce gross profit margins of more than 50 per cent.

Last Friday Kathmandu announced former Qantas CEO James Strong as its chairman. Strong is the current chairman of both Woolworths and Insurance Australia Group.