Beacon Light’s debut on the Australian Securities Exchange has greatly exceeded expectations, with shares in the lighting business surging 60% in its first day of trade.
The company’s shares began trading at 66 cents each, valuing the company at $142 million, but by close yesterday the company’s value had jumped to more than $220 million.
In its subscription for its initial public offering in early March the business successfully raised almost $67 million through the allocation of 96.75 million shares.
Beacon Lighting, Australia’s largest retailer of residential lighting and ceiling fans, closed at $1.06 yesterday.
In early trade this morning shares had already lifted even further to $1.07 at 11:20am.
IG Markets market strategist Evan Lucas told SmartCompany it was a great start for Beacon Lighting, however he believes the company is overvalued at $220 million.
“I don’t think it was really worth 60% more than its starting price, it’s not really a $220 million company. I think it’s more like a $180 million company at the top end,” he says.
“But it does show the IPO market is still there is you have the right business model,” he says.
The business has two revenue streams, as it has 71 company owned stores and a further 14 franchise stores.
Lucas says these split revenue stream means even in tough trading periods, the company is still able to make money through franchise stores.
“It also has an interesting model in terms of the way and where the stores are positioned. The stores are generally all at homemaker centres and in New South Wales this has been particularly tricky to break into,” he says.
“More than 25% of the margin is squeezed out of the NSW stores because of high rents in these centres alone, which means their profits aren’t usually astronomical, but they’re not bad.”
Lucas says Beacon Lighting’s strategic direction and “reasonable growth profile” will have helped generate interest in the brand.
“There has been a pick-up in consumer confidence and discretionary spending and this has helped the brand, as well as the increased demand for home products.”
According to The Sydney Morning HeraldBeacon Lighting sources 90% of its products directly, rather than going through wholesalers and 80% of the stock is manufactured offshore, giving the company a 64% gross sales margin.
The company first launched in 1967 by John Strahan, opening a store on Chapel Street in Melbourne.
The largest stakeholder in the company now is Ian Robinson who started in the business as an employee in 1969 and whose family has a 55% stake.
Ian Robinson is currently the executive chairman of Beacon Lighting, while his son Glen Robinson is the chief executive.
Lucas says it’s usual for there to be a “fair amount” of excitement about a company when it launches, but after the first few days the market settles down.
“In the next few months you’ll get a better indication of what the market actually thinks,” he says.
Lucas says in the next few months there will be a lull for the IPO market.
“This is never the best time to be listing. In the United States it’s the last month before the summer holidays begin,” he says.
“There are some upcoming floats which will be interesting. Genesis Energy is listing, and there’s often excitement about energy companies, although this one hasn’t attracted as much interest.”
Lucas says toward the end of the year a possible float of Medibank Private is one to watch, as is 360 Capital Group and Brookfield Multiplex.
“There have been rumours that Brookfield Multiplex could list and that would be a really big development, one people have been waiting to come about.
“Otherwise there’s a few online players rumoured to be listing, but it’s just talk at this stage.”