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Ethos Private Equity
Ethos Private Equity

Ethos sets sights on raising R1.2bn in Holdsport listing


Business Report - Jun 29th 2011, 09:24

Ethos Private Equity could raise R1.2 billion through the listing of Holdsport, the owner of Sportsmans Warehouse and Outdoor Warehouse, which it bought through its Fund V for R681 million in 2006. 

Michael Jensen, a principal at Ethos Private Equity, said yesterday that R1.2bn could be raised if the full 70 percent of the shares on offer were placed. The offer is only open to institutional investors.

About 42.9 million shares will be listed, of which up to 30 million, or 70 percent, will be sold in a book build for between R31 and R39 each. The company plans to list on July 18.

Jensen said the majority of the funds raised would go to Ethos, which would pay institutional investors in Fund V. Ethos makes a 2 percent management fee on investments and earns 20 percent on the upside, but only once it returns all capital to investors and meets an agreed hurdle rate.

A portion of the funds raised through the listing will accrue to Holdsport’s management, although management will retain most of its holding. Ethos will also retain a stake of between 5 percent and 12 percent.

Stuart MacKenzie, a partner at Ethos, said the return on the Holdsport investment was in line with the returns on other investments Ethos’s funds had made.

In a prelisting statement issued yesterday Holdsport said that for the five-year period to February, revenue, core earnings before interest, tax, depreciation and amortisation (Ebitda) and core operating income from continuing operations grew at compound annual growth rates of 12.6 percent, 13.7 percent and 13.5 percent, respectively.

In the year to February sales rose 11.3 percent to R1.13bn and core operating profit rose 23 percent to R210m.

Chris Gilmour, an equity analyst at Absa Investments, said Holdsport’s financial performance was good compared with competitor Mr Price Sport, but it had the advantage of having been around for longer.

The trading density at Mr Price Sport was R12 241 per square metre in the year to April, compared with Holdsport’s R16 367 a square metre in the 2011 financial year.

Trading density, or sales per square metre, shows how effectively a retailer is using its space.

Gilmour said Mr Price Sport, with 40 stores, did not not yet have the same high profile as Sportsmans Warehouse, with its 51 stores, but it had potential.

Foschini’s sports retail brands – Totalsports, Sportscene and Due South – have a far larger footprint in terms of store numbers with 324 outlets, but they are far smaller than Sportsmans Warehouse and Outdoor Warehouse.

Foschini’s sports divisions in the year to March grew turnover 16.9 percent to R1.75bn. In the 53 weeks to April Mr Price Sport grew sales by 27 percent, exceeding R500m for the first time. Holdsport said core Ebitda margins rose from 19.8 percent in 2007 to 20.6 percent in 2011 and core operating margins had increased from 18 percent in 2007 to 18.6 percent.

Gilmour said Holdsport’s margins were good numbers, with anything over 20 percent being a “super margin”. He added that as Holdsport stores stocked expensive sporting equipment, which might not move that quickly, it had to make sure it made good margins.

The company said it had been able to achieve and maintain attractive margins due to rigorous cost management, direct sourcing, private label ranges, economies of scale and a diverse product offering.

Holdsport’s growth will be achieved by increasing turnover at existing stores and opening three to five new stores a year in the medium term. Holdsport has one store in Namibia and it plans to expand elsewhere in sub-Saharan Africa. 

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