Timmy’s IPO ceiling price raised - now over-over valued
Posted on March 21, 2006
Filed Under Business, News |
The price has been set $22-24USD ($25-27CAD) for a stake in Canada’s favourite coffee shoppe. The underwriters, Goldman, Sachs & Co., JPMorgan, RBC Capital Markets and Scotia Capital, are salivating at this over valuation because it means more money for them. But go read the prospectus.
After a number of years of rapid expansion, the growth in the number of outlets has slowed, same store sales have slowed, and net income growth has lagged far behind sales growth. Further, although at IPO time THI’s debt will be low, it is because the IPO funded the repayment of huge amounts of debt back to Wendy’s. So in the past, everytime Tim Horton’s need money, the parental unit (Wendy’s) coughed up the cash. As any parent with a teen would know, once the money is gone they will be back for more. So expect the debt to climb once again after the IPO. See, the reason Wendy’s is spinning off THI is not because they want it to grow and prosper on its own. If it were truely growing and prospering, then they would keep all the profit for themselves by continuing to own 100% of Tim Horton’s (like Warren Buffett, who wholly owns most of companies in his portfolio). But looking at the financial statements, it looks like Tim Horton’s is that kid that spends all of its parents money, and is getting kicked out. The benefit for this parent (company) is that when it does the kicking (in the form of an IPO) it gets some of its money back, unlike the parent of the kid.
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