Biggest NZX listing since 2014: Can My Food Bag deliver?

My Food Bag’s initial public offer is set to usher in the biggest NZX-listing since Genesis Energy went public in 2014.

The meal kit company will list on the NZX and ASX on March 5, pending the sale of up to 185 million shares in an IPO that values it at just under $450 million.

The shares have been priced at $1.85 each with most of the $342m proceeds going to existing shareholders selling down their holdings. Only $55m will go to the company, of which $38.2m will repay bank debt and $16.7m will fund the IPO costs.

The offer, which closes on Thursday for non-institutional investors, has led to debate about the company’s growth prospects amid a more competitive landscape and Covid-driven demand for home meal deliveries.

Despite the dual listing, My Food Bag chief executive Kevin Bowler said the company had no plans to revisit launching in the Australian market, or to expand offshore internationally.

Instead, he says the company would focus on establishing local growth through developing its ready-to-eat offering, as part of a $37 billion opportunity within the grocery sector.

It would also look at expansion options outside of food, including pet food and cleaning and personal care subscription boxes, although these are not in immediate plans for 2021.

The secondary listing on the ASX is purely opportunistic in that it will give the company access to an additional larger capital market, he says.

“We have no plans to launch in any offshore markets,” says Bowler.

“Building on our history of innovation and exceptional customer service, we have identified a pipeline of growth opportunities in New Zealand. These are based upon strategic areas of focus to expand further into the $37 billion New Zealand retail food sector.

“This includes continued growth in the meal kit sector and expansion into other food-based offerings such as ready-made meals to align to consumer trends and play a bigger part in customers’ lives. These are current and continuing areas of focus for the business.”

My Food Bag is intent on introducing new brands and products, one-off bags and seasonal offerings and free bonus products in bags “to surprise and delight customers”, as well as occasional dessert offerings, he says.

It has recently launched goal-based offerings and personalised service My Choice Bag.

In the past financial year, My Food Bag made a profit of $8.2m and revenue of $153.3m, about $40m shy of its biggest rival HelloFresh’s almost $194m revenue.

The product disclosure statement forecasts revenue rising to $189.5m in 2021 and dipping slightly to $186.4m in 2022.

The company expects net profit in 2021 of $800,000 to be adjusted on a pro forma basis to $15.6m and rising to $20.1m in 2022.

Bowler says the fall in profit FY21 could be attributed to costs associated with listing on two share markets, and was also driven by a forecast increase in pro-forma earnings, impacted by a full year of procurement cost savings from contracts that were signed in the year.

Prior to the first Covid-19 lockdown in April last year, My Food Bag says it was already experiencing an increase in demand, driven by more Kiwis shopping online. When New Zealand was placed into lockdown this trend was accelerated and the company experienced new sign-ups and growth of 10 to 20 per cent.

Bowler says “a lot of the demand” experienced in April and May had been retained through the remainder of 2020 and into 2021.

While revenue for FY21 to FY22 is forecast to decrease by 1.6 per cent, he says this can be attributed to a decrease in delivery volumes and the normalisation of orders following demand during the country’s first lockdown early last year.

In the year to date, he says there has been an uplift in My Food Bag’s customer numbers.

More than 300,000 people have signed up to My Food Bag since it launched in 2013.

Analysts and fund managers believe demand for the company’s stock will be largely driven by its strong brand presence and position as a household name.

Some institutions, including Milford Asset Management, Harbour Asset Management and Investment Services Group (which owns Devon Funds Management) committed ahead of the bookbuild to each buy at least a 5 per cent stake.

The company has now completed its institutional bookbuild, which it says was fully subscribed.

My Food Bag is targeting a dividend yield pay-out ratio of between 70 per cent to 90 per cent of net profit after tax in any given financial year. It intends to pay its first dividends worth $16m, or 7 cents per share, in the second half of FY22.

Underwhelming or safe growth plans?

Retail commentator Chris Wilkinson says he believed My Food Bag was keeping its growth plans small at this stage out of caution to avoid being undercut by market rival HelloFresh.

Given the scale of HelloFresh and its presence in 11 global markets, Wilkinson said My Food Bag was no doubt only focused on winning in the New Zealand market.

“HelloFresh is on an epic scale, the business is large, international and they own and dominate many markets around the world, and in many places they have set a standard that creates challenges for newcomers,” says Wilkinson.

“If My Food Bag can succeed and own the NZ market that would be a great outcome.”

Wilkinson said the decision not to launch in Australia was a missed opportunity for the company to grow into a household name there. However, he said there was an abundance of competition in that market already.

“Australia has some big players, not only HelloFresh; it’s got regional and national players, as well as emerging players.”

Wilkinson said there were potentially other vehicles for My Food Bag to revisit operations in Australia at a later date, including through licensing its IP to a supermarket chain.

He said perhaps My Food Bag was keen on taking its business to Australia but was remaining coy on longer-term plans as a way to safeguard against competition.

My Food Bag has a pool of shares set aside for a “Foodies Offer” which remains open until 5pm on the 26th of February.

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