IPO Launch: Southeastern Grocers Aims For $134 Million U.S. IPO
IPOs, Tech
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Summary
- Southeastern Grocers has filed to raise $134 million for selling shareholders in an IPO.
- The firm operates several branded retail grocery store networks in the Southeastern United States.
- SEGR plans to pay an annual dividend yield of 2.75% based on its proposed $15.00 midpoint IPO stock price, so is worth consideration for dividend oriented investors.
Quick Take
Southeastern Grocers (SEGR) has filed to raise $134 million for selling stockholders from the sale of its common stock in an IPO, according to an amended registration statement.
The company operates grocery supermarket stores under various names in the southeastern United States.
SEGR intends to produce an annual dividend yield of 2.75% based on a $15.00 IPO price, so for investors interested in that profile, the IPO is worth a close look.
Company & Technology
Jacksonville, Florida-based Southeastern was founded to develop a network of grocery supermarket stores in the U.S. states of Florida, Georgia, Alabama, Louisiana and Mississippi.
Management is headed by president and CEO Anthony Hucker, who has been with the firm since 2016 and was previously president and COO of Schnuck Markets and president of Giant Food.
Below is a brief overview video of how the firm dealt with excess Covid-19 related demand:
Source: CNBC Television
The firm operates under three banners:
Winn-Dixie
Harveys
Fresco y Mas
The firm is the second largest operator in the states in which it operates in terms of number of stores.
In May 2018, SEGR completed its bankruptcy reorganization and converted from an LLC to a corporation.
Earlier in 2020, the firm entered into agreements to dispose of certain stores of its BI-LO and Harveys brands to Food Lion and other buyers in multiple transactions.
Also, the firm sold the pharmacy prescription files for 58 of the in-store pharmacies that it operates to CVS and Walgreens.
After these and other planned dispositions, approximately 87% of its remaining portfolio will consist of Winn-Dixie stores.
Market & Competition
According to a 2020 market research report by IBISworld, the market for supermarkets and grocery stores in the U.S. is expected to reach $678.4 billion in 2020, with a growth trajectory shown in the chart below:
This represents a forecast annualized market size growth of 1.4% from 2015 to 2020.
The main driver for this expected growth is per capita disposable income which has trailed overall GDP growth from 2015 to 2020.
Also, the firm and its subsidiaries face competition from other brick and mortar food and drug stores (Kroger (KR) and Albertsons (ACI)), wholesalers (Costco (COST)), online retailers, specialty supermarkets, general merchandise stores, farmers' markets, restaurants and meal solution companies that deliver direct to the home.
Financial Performance
Southeastern’s recent financial results can be summarized as follows:
Uneven but recently increased topline revenue
Variable gross profit, increasing gross margin
A swing to operating profit and net income in the current year
Uneven but recently strong growth in cash flow from operations
Below are relevant financial results derived from the firm’s registration statement:
Total Revenue |
||
Period |
Total Revenue |
% Variance vs. Prior |
40 weeks Ended Sept. 30, 2020 |
$ 7,395,741,000 |
16.6% |
Year Ended Dec. 25, 2019 |
$ 8,277,374,000 |
-5.6% |
Year Ended Dec. 26, 2018 |
$ 8,772,512,000 |
|
Gross Profit (Loss) |
||
Period |
Gross Profit (Loss) |
% Variance vs. Prior |
40 weeks Ended Sept. 30, 2020 |
$ 2,044,728,000 |
23.0% |
Year Ended Dec. 25, 2019 |
$ 2,160,150,000 |
-4.9% |
Year Ended Dec. 26, 2018 |
$ 2,272,281,000 |
|
Gross Margin |
||
Period |
Gross Margin |
|
40 weeks Ended Sept. 30, 2020 |
27.65% |
|
Year Ended Dec. 25, 2019 |
26.10% |
|
Year Ended Dec. 26, 2018 |
25.90% |
|
Operating Profit (Loss) |
||
Period |
Operating Profit (Loss) |
Operating Margin |
40 weeks Ended Sept. 30, 2020 |
$ 287,129,000 |
3.9% |
Year Ended Dec. 25, 2019 |
$ (34,896,000) |
-0.4% |
Year Ended Dec. 26, 2018 |
$ (66,248,000) |
-0.8% |
Net Income (Loss) |
||
Period |
Net Income (Loss) |
|
40 weeks Ended Sept. 30, 2020 |
$ 235,053,000 |
|
Year Ended Dec. 25, 2019 |
$ (116,240,000) |
|
Year Ended Dec. 26, 2018 |
$ 675,064,000 |
|
Cash Flow From Operations |
||
Period |
Cash Flow From Operations |
|
40 weeks Ended Sept. 30, 2020 |
$ 497,528,000 |
|
Year Ended Dec. 25, 2019 |
$ 56,945,000 |
|
Year Ended Dec. 26, 2018 |
$ 179,903,000 |
|
As of 40 weeks ended Sept. 30, 2020, Southeastern had $66.1 million in cash and $2.1 billion in total liabilities.
Free cash flow during the twelve months ended Sept. 30, 2020, was $463.2 million.
IPO Details
SEGR’s selling shareholders intend to sell 8.9 million shares of common stock at a proposed midpoint price of $15.00 per share for gross proceeds of approximately $133.5 million, not including the sale of customary underwriter options.
No existing shareholders or new investors have indicated an interest to purchase shares at the IPO price.
Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO would approximate $917.7 million.
Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 20.52%.
Per the firm’s most recent regulatory filing, the firm won’t receive any proceeds from the IPO, rather the following yellow highlighted shareholders will be selling into the IPO:
Management’s presentation of the company roadshow is available here.
Listed underwriters of the IPO are BofA Securities, Goldman Sachs, Deutsche Bank Securities, BMO Capital Markets, Truist Securities, and Wells Fargo Securities.
Valuation Metrics
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Commentary
SEGR is seeking to go public to provide liquidity to some of its major shareholders and create a public market for its stock for future growth or operational needs.
The company’s financials show the changes in consumer behavior during the pandemic, with growing topline revenue and improving other major metrics, especially notable since the firm’s bankruptcy and reorganization in 2018.
Operating cash flow was recently enormous due to a variety of inventory changes and other likely short-term factors.
SEGR has been greatly assisted in 2020 as a result of the Covid-19 pandemic and the increase in consumer buying behavior.
The market opportunity for grocery supermarkets is expected to continue to grow at a moderate pace - probably between 1% and 1.5% for the foreseeable future.
A recurrence of pandemic-related buying in late 2020 and into 2021 may continue to buoy SEGR’s results in the near-term.
BofA Securities is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 109.2% since their IPO. This is a top-tier performance for all major underwriters during the period.
As to valuation, compared to similar but larger firm Kroger, SEGR’s IPO appears reasonably priced, with significantly lower revenue and EBITDA multiples despite higher earnings and revenue growth.
Although the recent surge in revenue due to the Covid-19 pandemic is likely a one-off event, SEGR appears to be back on track and the IPO looks fairly valued.
For investors seeking a safe, slow grower that intends to produce an annual dividend yield of 2.75% based on a $15.00 IPO price, the IPO is worth a close look.
Expected IPO Pricing Date: January 28, 2021.
Note: This report is intended for educational purposes only and is not financial, legal or investment advice. The information referenced or contained herein may change, be in error, become outdated and irrelevant, or removed at any time without notice. You should perform your own research before making any decisions. IPO investing carries significant volatility and risk of loss.
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