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Healthy Reception For Oliver's IPO

The health food evangelist behind this impending listing faces a (literally) heavyweight task: weaning truckies and travelling families at roadside stops from fried dim sims to chia pods, pita pockets and green beans served in a French-fries style packet.

Adopting the ‘build it and they will come’ ethos, Oliver’s founder Jason Gunn opened his first pit stop at Wyong North in NSW in 2005. The local tourist bureau had vacated the premises, but the head lease was assigned to McDonald’s who – naturally -- stipulated that a rival fast food chain could not fill the void.

Perusing the document, Gunn discovered that a fast food chain was defined as having three outlets or more. With the loophole detected, the lease was inked and the first Oliver’s – the world’s only certified organic fast food chain -- opened for business.

The company then secured further long-term sites after BP evicted Subway and put all its highway servos to tender.

With a current spread of 22 outlets and revenue of 21m, Oliver’s is tapping investors for funds to grow to 45 outlets over the next two years.

Two new IPOs made it to the starting line this week, with both testing investor appetite for healthy products.

With the minimum $9m in the can, the IPO closed on Friday ahead of a planned listing on June 21.

Initially, institutional investors weren’t hungry: the deal only got away after the vendors agreed to reduce the offer price from 30c to 20c a share. But retail takeup was strong, especially from loyal customers hoping the offer is as tasty as the food

One reason for the revision was the valuation comparative provided by the mooted IPO of Craveable, which owns the Red Rooster and Oporto chicken joint names here.

Think of Oliver’s as the healthy entrée to the big one.

At the original 30c, the Oliver’s offer was pitched on a multiple (enterprise value to ebitda) of nine times. This is based on the prospectus guidance for 2017-18 of ebitda of $4.76m on revenue of $42m, compared with the forecast current year loss of $1.9m.

At 20c/sh, this falls to 8.8 times. While no formal guidance for 2018-19 was offered, this should fall further as the new stores ramp up.

The Craveable offer reportedly is being valued at $450m to $530m and will be struck on a multiple of around 12 times. So while the Craveable IPO ostensibly is more expensive than Oliver’s even at the latter’s original price, the premium is understandable given Craveable is the more substantive and established player.

Arguably, though Oliver’s has more scope to supersize given its modest presence in the first place.

For a nation fond of our burgers and chicken nuggets, we’ve had relatively few listed fast-food exposures beyond Dominos (DMP) and Collins Foods (CKF), owner of KFC and Sizzler outlets in Qld and WA.

Oliver’s is a niche play in comparison but the New Criterion is impressed by its ability to divert weary travellers away from the high-fat siren call of adjacent McDonald’s and KFC outlets.

The eastern seaboard arterial roadside market is estimated at $1bn, which means that Oliver’s has a 2-4% chunk and plenty of room for profitable growth. Oliver’s also claims to serve two million customers annually, if only for an organic fair trade cappuccino.

Oliver’s by the way bears no relation to Jamie Oliver, fellow fresh food evangelist (as long as the stuff is bought from Woolworths).

View More Articles By Tim Boreham

The New Criterion is authored by Tim Boreham.

Many readers will remember Boreham as author of the Criterion column in The Australian newspaper, for well over a decade. He also has more than three decades' experience of business reporting across three major publications.

Tim Boreham has now joined Independent Investment Research and is proud to present The New Criterion, which will honour the style and purpose of the old column. These were based on covering largely ignored small to mid cap stocks in an accessible and entertaining manner for both retail and professional investors.

Disclaimer: The author nor Independent Investment Research have received a fee or any kind of inducement for this article. The New Criterion is not intended as specific investment advice and readers should contact a licensed financial adviser.



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