MrGreen
2021-09-29
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Keter Group's IPO Is Worth Close Watching
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{"i18n":{"language":"zh_CN"},"detailType":1,"isChannel":false,"data":{"magic":2,"id":862240157,"tweetId":"862240157","gmtCreate":1632884549438,"gmtModify":1632884549734,"author":{"id":3576511277084418,"authorId":3576511277084418,"authorIdStr":"3576511277084418","name":"MrGreen","avatar":"https://static.tigerbbs.com/15d34383baa6cc8886d9224669a807d4","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":6,"crmLevelSwitch":0,"individualDisplayBadges":[],"fanSize":65,"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"extraTitle":"","html":"<html><head></head><body><p>Like pl</p></body></html>","htmlText":"<html><head></head><body><p>Like pl</p></body></html>","text":"Like pl","highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":1,"repostSize":0,"favoriteSize":0,"link":"https://laohu8.com/post/862240157","repostId":1188597251,"repostType":4,"repost":{"id":"1188597251","pubTimestamp":1632883202,"share":"https://www.laohu8.com/m/news/1188597251?lang=&edition=full","pubTime":"2021-09-29 10:40","market":"us","language":"en","title":"Keter Group's IPO Is Worth Close Watching","url":"https://stock-news.laohu8.com/highlight/detail?id=1188597251","media":"seekingalpha","summary":"Summary\n\nKeter Group SA filed an S-1 statement, intending to list on NYSE under the ticker symbol \"K","content":"<p><b>Summary</b></p>\n<ul>\n <li>Keter Group SA filed an S-1 statement, intending to list on NYSE under the ticker symbol \"KETR\" as a \"foreign private issuer\".</li>\n <li>The company's business model has been very successful in bringing together many sub-segments. Each of them is flourishing due to the changes that have occurred in society since the lockdown.</li>\n <li>Based on my ML models, the stock is likely to soar by ~20-30% after the placement (depending on the final valuation and the desire of the underwriters).</li>\n <li>Without knowing the offering price and the number of shares after the IPO, I cannot recommend that you buy KETR - that is why this article is \"Neutral\".</li>\n <li>However, I'll keep a close eye on this company and wait for the prospectus to be updated.</li>\n</ul>\n<p><b>Quick business description and recent financial performance</b></p>\n<p>Keter Group (KETR) SA filedan S-1 statement, intending to list on NYSE under the ticker symbol \"KETR\" as a \"foreign private issuer\" because the company is incorporated and existing under the laws of the Grand Duchy of Luxembourg. Keter was initially founded as a family business in Israel in 1948 (73 years ago) but was acquired byBC Partnersin 2016. The fund helped the company to expand operations and become one of the industry leaders - Keter is now creating \"amazing spaces in and around the home through an innovative, industry-leading portfolio of durable indoor and outdoor lifestyle solutions\", according to the \"Company Overview\" section in the prospectus. So there are 2 main business segments for KETR:</p>\n<ol>\n <li>\"Outdoor\" - accounting for ~47% of KETR's sales, this segment \"comprises three main product solutions: outdoor furniture and planters, sheds and buildings, and deck boxes and leisure.\"</li>\n <li>\"Indoor\" - represents the remaining 53% of total sales and consists of the following four subsegments: home storage and organization, tool storage, cabinets and shelving, and totes and medical containers.</li>\n</ol>\n<p>Keter sells its products through a group of retail partners in ~100 countries around the world, mainly focusing on North American (38% of total sales) and European (54%) markets.</p>\n<blockquote>\n We are focused on the attractive North America and Europe markets where our products are sold in over 70% of the top 50 hardline retailers.——Source: Form S-1\n</blockquote>\n<p>The behavior of people, which changed after the restrictive measures took place in the United States and Europe, played into the hands of the company - people began to spend more time at home, which led to an increase in their natural desire to furnish their home as comfortable as possible so that it was more pleasant to be in it. Therefore, the numbers you'll see below are the result of solely organic growth:</p>\n<p><img src=\"https://static.tigerbbs.com/475988b4d23178ef64671ea36cb15c16\" tg-width=\"640\" tg-height=\"214\" referrerpolicy=\"no-referrer\"></p>\n<p>Source: Author's notes base on S-1 filing</p>\n<p>I have highlighted the main financial indicators in red boxes. The revenue growth in itself for this industry is not such a significant indicator, although it amounted to 35% in 2Q 2021 compared to 2Q 2020. What matters more is the widespread improvement in financials \"below revenue\" - the revenue growth in 1H 2021 (30%) is below gross profit growth (33%), which in turn is significantly below EBIT growth (67%). I've shown it all with the 2 red arrows on the screenshot above. Such kind of operating leverage led to Keter finally becoming profitable in 1H 2021.</p>\n<p>As for the company's cash flows, here we have a rather twofold situation, which, nevertheless, we can try to explain logically.</p>\n<p><img src=\"https://static.tigerbbs.com/4fdbed2d85b980489b30b55d2716b97d\" tg-width=\"640\" tg-height=\"462\" referrerpolicy=\"no-referrer\"></p>\n<p>Source: Author's notes base on S-1 filing</p>\n<p>Since cash flows from operating activities (CFO) decreased by ~17%, and capital expenditures increased from €13.5 million to €20.9 million (+55.05%), free cash flow declined by 26.11% in 1H 2021, YoY. However, I do not think that this is a negative sign because the fall in the CFO is explained by the strong growth of inventory on the company's balance sheet. This, in turn, can explain the growth in demand for the company's products - if the demand is high, then more products have to be produced. This assumption is also confirmed by the growth of CAPEX - why buy more equipment if demand is stable or declining?</p>\n<p>In general, I believe that Keter is well-positioned due to the uniformity of its business structure, which is supposed to allow the company to keep on increasing its profitability, since both \"Outdoor\" and \"Indoor\" segments,dividing the revenue almost in half, have their unique catalysts - the topic of the next part of this article.</p>\n<p><b>Market opportunities</b></p>\n<p>Keter Group believes its Total Addressable Market (TAM) has generated ~$27.8 billion across North America and Europe in 2020.</p>\n<blockquote>\n The most attractive market segment within this large TAM, resin-based solutions, is estimated to have generated retail sales of approximately $9.7 billion in 2020 and is expected to grow at a CAGR of 4.4% between 2020 and 2023, nearly twice the pace of products made of other materials.——Source: Form S-1\n</blockquote>\n<p>Although Keter's segments are closely related to each other, as I said earlier, each of them has its own catalysts for growth.</p>\n<p><b>Outdoor segment</b></p>\n<p>Keter Group is one of the biggest players of outdoor furniture and planters sub-categories in both Europe and the United States. It's also the number one resin-based player in Europe in sheds and buildings and the number two in the United States. This particular sub-market is estimated to grow at a CAGR of 5.5% for the next 8 years,according to GlobeNewswire.com.It is noteworthy that back in 2019, the growth of this marketwas estimatedat only 3.8%. This improvement, in my opinion, is due to some tailwind factors experienced by a few players in this market:</p>\n<blockquote>\n Increase in the adoption of smartphones and high penetration of internet are bolstering the adoption of e-commerce across the world. This has encouraged the Outdoor Shed Market providers to opt for online selling channels to expand their respective customer bases. Raw materials and other equipment required to construct Outdoor Shed Markets are often bulky. Therefore, in conventional purchase, it is difficult to carry everything from store to home. On the other side, in online purchases, these materials and tools are delivered at a doorstep. Moreover, e-commerce allows consumers to compare the material quality and prices with all the available options. The COVID-19 pandemic crisis is compelling consumers to stay indoors. Moreover, people managed to make time to develop the outer area of their houses by opting for the do-it-yourself (DIY) approach amid the pandemic. As a result, surge in the popularity of online channels for buying essential and nonessential goods, comprising Outdoor Shed Market materials, has fueled the market growth in the last couple of years.——Source: Outdoor Shed Market - COVID Impact and Global Analysis byTheInsightPartners.com\n</blockquote>\n<p>As for Keter specifically, the company is actively developing in this sub-segment, adjusting to the \"spirit of the times\": \"In 2021, UBQ Materials, a developer of the most climate-positive thermoplastic material on the market, entered into a partnership with Keter Group to incorporate UBQ into multiple product lines; the move is meant to help the companies to achieve its sustainability goal by incorporating 55% recycled content in its product line by 2026.\"</p>\n<p>Another sub-segment, outdoor furniture and planters, is also expected to grow at a good pace - the 6-year CAGR equals ~3.1%, according toPrecision Reports.</p>\n<p><b>Indoor segment</b></p>\n<p>All of the four sub-segments here benefit from the \"continued strength of the housing market and increasing spend on home improvement, renovation, and restoration activity, and the growing interest in home decoration and organization.\" KETR, in turn, does not stand still and tries to overtake its competitors in terms of innovations in this market. For example, after the company introduced the PACKOUT brand in 2018, which allows users to stack and lock boxes, organizers, and crates in any configuration, Keter Group's share of the \"tools storage\" sub-segment in the U.S. grew from 6% in 2015 to 9% in 2020.</p>\n<p>Having and operating the \"medical containers\" sub-segment, Keter Group, in my opinion, is exposed to higher growth rates compared to its peers because the most recent developments of events proved the \"essentialness\" of such kinds of products:</p>\n<blockquote>\n In the US, healthcare professionals and leading organizations are distracting the flow of healthcare resources from research & development to primary care due to an increasing number of COVID-19 confirmed patients, which is slowing down the process of innovation. Moreover, the US has the maximum number of COVID-19 patients across the world. However, compared to the initial phase of the COVID-19 outbreak in 2020, various businesses in the regions were closed due to multiple reasons, such as the lockdown and reduced production of products and goods. Moreover, well-established treatment procedures and stability in the healthcare system have helped the associated businesses gain pace. The vaccines, ventilators, oxygen generators, and other medical devices and medications have gained importance and demand amid the pandemic. These products are exported to various developing regions. Boxes, molded fiber, containers, and blisters are used for the packing of these products. The supply of the packing material is stable and resumed as compared to the initial phase of the outbreak. Thus, the COVID-19 pandemic is expected to have a low impact on the medical packaging market.——Source:TheInsightPartners.com\n</blockquote>\n<p>Here's what the pivot table looks like for the expected growth of all sub-segments of the company:</p>\n<table>\n <tbody>\n <tr>\n <td><b>Segment</b></td>\n <td><b>Sub-segment</b></td>\n <td><b>Long-term CAGR</b></td>\n </tr>\n <tr>\n <td><b>Outdoor</b></td>\n <td>resin-based sheds and buildings</td>\n <td>5.50%</td>\n </tr>\n <tr>\n <td>furniture and planters</td>\n <td>3.10%</td>\n </tr>\n <tr>\n <td>deck boxes and leisure</td>\n <td>2%</td>\n </tr>\n <tr>\n <td><b>Indoor</b></td>\n <td>home storage and organization</td>\n <td>~6%</td>\n </tr>\n <tr>\n <td>tool storage</td>\n <td>6%</td>\n </tr>\n <tr>\n <td>cabinets and shelving and totes</td>\n <td>7.50%</td>\n </tr>\n <tr>\n <td>medical containers</td>\n <td>6.40%</td>\n </tr>\n </tbody>\n</table>\n<p>Source: Author's calculations and selection</p>\n<p>Overall, I believe that Keter has a lot of room to grow, given how many different opportunities the current state of the market gives. As we can see, the company can expand its presence in key markets. At the same time, competition in these markets is mostly provided by several large players. This allows Keter to continue to innovate and at the same time feel good leaning on the broad diversification of its operations.</p>\n<p><b>Instead of valuation: machine learning prediction of the IPO's underpricing</b></p>\n<p>This is my own rubric that you won't find anywhere else. With the help of my recent articles, I'd like to share a method for predicting the amount of IPO underpricing, because this can bring a potential pre-IPO investor a colossal medium-term profit while protecting against drawdowns before the lock-up period.</p>\n<blockquote>\n I devoted my bachelor thesis to finding the optimal machine learning (ML) method/model for predicting the underpricing of IPOs. I have manually collected financial and non-financial data from companies entering the US market since 2018. After excluding all SPACs and companies with missing information, I got a sample of 420 companies (observations) with 25 variables (attributes). Some feature engineering activities led me to >40 variables - the most useful for prediction from my point of view. Perhaps someday I'll share my developments on GitHub, but now I consider it my intellectual property, which is getting better day by day while the number of observations grows. I intend to use this ML model specifically for you, Seeking Alpha's readers.\n</blockquote>\n<blockquote>\n You can judge the effectiveness of my model frommy last articleon Thomas James Homes (TJH), where I presented the findings of backtesting (on real data).\n</blockquote>\n<blockquote>\n However, like any ML model, mine has some pitfalls. The most important of them is that it includes 2 variables that are still unknown to us - the share of the company that will remain with the management and directors after the IPO, and the answer to the question: \"Was the offering price range raised?\". That is why I'm going to use 2 scenarios, based on which I'll judge the possibility of underpricing - the \"bullish\" scenario (the offering price range is raised and the management has 30%) and the \"bearish\" scenario (the offering price range is not raised, 5% for the management).——Source: \"Life Time Group Holdings' IPO: Back To Normal Business Condition\"\n</blockquote>\n<p>Using the above methodology in two scenarios, I get the following results:</p>\n<p><img src=\"https://static.tigerbbs.com/5312a1a9e5c980929e11475204e93e75\" tg-width=\"420\" tg-height=\"181\" referrerpolicy=\"no-referrer\">[\"Bullish case\"]</p>\n<p><img src=\"https://static.tigerbbs.com/16d63d430499def36456741e046482ee\" tg-width=\"424\" tg-height=\"184\" referrerpolicy=\"no-referrer\">[\"Bearish case\"]</p>\n<p><b>Author's note</b>: I understand that many things in my model may not be clear to you - feel free to ask in the comments.</p>\n<p>I'd like to draw your attention to the conclusions of \"KNN general\" and \"KNN by industry\" models - these two have established themselves as the most effective ones, capable of bringing >20% of abnormal return in comparison with the average IPO underpricing (proven in backtesting). Therefore, I recommend investors participate in KETR's pre-IPO if they have such an opportunity.</p>\n<p><b>Classical valuation approach: what P/S multiple should we focus on?</b></p>\n<p>Since we do not yet know either the offering price or the number of shares after the offering, we cannot value Keter Group. All we can do is look at the multiples of its closest publicly traded peers and focus on them when KETR's prospectus is updated.</p>\n<p>As I noted earlier, KETR has few competitors and even fewer public ones. I could only find two for comparison:</p>\n<ol>\n <li>Lifetime Brands, Inc. (LCUT);</li>\n <li>Newell Brands Inc. (NWL)</li>\n</ol>\n<p>It is best to look at P/S multiples and the most recent revenue changes. Yes, I wrote above that revenue is not the most important thing, but it should be borne in mind that Keter has just become profitable, without having a long-term profitability history. In such cases, willy-nilly, it's better to use the Price-to-Sales ratio and match this multiple with the revenue growth rates.</p>\n<table>\n <tbody>\n <tr>\n <td><b>Company ticker / Metric</b></td>\n <td><b>P/S (FWD)</b></td>\n <td><b>Sales growth in 2Q, YoY</b></td>\n <td><b>Sales growth in 1H, YoY</b></td>\n </tr>\n <tr>\n <td>LCUT</td>\n <td>0.47</td>\n <td>24.32%</td>\n <td>29.51%</td>\n </tr>\n <tr>\n <td>NWL</td>\n <td>0.99</td>\n <td>28.33%</td>\n <td>25.02%</td>\n </tr>\n <tr>\n <td><b>Average</b></td>\n <td><b>0.73</b></td>\n <td><b>26.32%</b></td>\n <td><b>27.26%</b></td>\n </tr>\n <tr>\n <td><b>KETR</b></td>\n <td><b>?</b></td>\n <td><b>35.00%</b></td>\n <td><b>30.00%</b></td>\n </tr>\n </tbody>\n</table>\n<p>Source: Author's calculations based on SA data</p>\n<p>So, as you can see, Keter's revenue growth is outpacing the corresponding growth rates of the nearest public peers, so I conclude that when we have more details and can value the company, we should target a Price-to-Sales multiple close to the average of 0.73x (the final multiple should be less so that there is an underestimation and upside potential). Anyway, these results are preliminary - they can change significantly when KETR finally IPOs. That's why one has to update the table above a few days before the offering.</p>\n<p><b>Risks to keep in mind and takeaway for potential investors</b></p>\n<p>The company has a lot of idiosyncratic risks, the main ones of which I have selected below:</p>\n<blockquote>\n An interruption of our production capability at one or more of our manufacturing facilities from pandemics, accidents, calamities or other causes or events affecting the global economy, could adversely affect our business, financial condition and results of operation;\n</blockquote>\n<blockquote>\n The markets in which we compete are competitive and include numerous other brands, suppliers and retailers that offer a wide variety of products that compete with our products. If we fail to compete effectively, we could lose our market position;\n</blockquote>\n<blockquote>\n Dependence on key customers and sales channels could adversely affect our business, financial condition and results of operations;\n</blockquote>\n<blockquote>\n Shortages in supply, price increases or deviations in the quality of raw materials used to manufacture our products could adversely affect our sales and operating results;\n</blockquote>\n<blockquote>\n The global nature of our Company’s operations subjects it to political and economic risks that could adversely affect its business, results of operations or financial condition.——Source: S-1 filing\n</blockquote>\n<p>It confuses me that ~48% of the company's total revenue comes from the top 10 clients - this makes KETR's operations extremely unstable if at least one of these clients refuses to cooperate further.</p>\n<p>In addition, the company is exposed to currency risk, because operating in many countries, it's forced to keep records in euros, which significantly affects the financial results:</p>\n<p><img src=\"https://static.tigerbbs.com/b497a3c1bcd191aa0c38921c765cf55d\" tg-width=\"640\" tg-height=\"311\" referrerpolicy=\"no-referrer\"></p>\n<p>Source: S-1 filing</p>\n<p>Be that as it may, I think that KETR's IPO is going to be successful - the stock is likely to soar by ~20-30% after the placement (depending on the final valuation and the desire of the underwriters). The company's business model has been very successful in bringing together many sub-segments - each of them is flourishing due to the changes that have occurred in society since the lockdown.</p>\n<p>Without knowing the offering price and the number of shares after the IPO, I cannot recommend that you buy KETR - that is why this article is \"Neutral\". However, I'll keep a close eye on this company and wait for the prospectus to be updated.</p>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Keter Group's IPO Is Worth Close Watching</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nKeter Group's IPO Is Worth Close Watching\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-09-29 10:40 GMT+8 <a href=https://seekingalpha.com/article/4457569-keter-groups-ipo-is-worth-close-watching><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Summary\n\nKeter Group SA filed an S-1 statement, intending to list on NYSE under the ticker symbol \"KETR\" as a \"foreign private issuer\".\nThe company's business model has been very successful in ...</p>\n\n<a href=\"https://seekingalpha.com/article/4457569-keter-groups-ipo-is-worth-close-watching\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{},"source_url":"https://seekingalpha.com/article/4457569-keter-groups-ipo-is-worth-close-watching","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1188597251","content_text":"Summary\n\nKeter Group SA filed an S-1 statement, intending to list on NYSE under the ticker symbol \"KETR\" as a \"foreign private issuer\".\nThe company's business model has been very successful in bringing together many sub-segments. Each of them is flourishing due to the changes that have occurred in society since the lockdown.\nBased on my ML models, the stock is likely to soar by ~20-30% after the placement (depending on the final valuation and the desire of the underwriters).\nWithout knowing the offering price and the number of shares after the IPO, I cannot recommend that you buy KETR - that is why this article is \"Neutral\".\nHowever, I'll keep a close eye on this company and wait for the prospectus to be updated.\n\nQuick business description and recent financial performance\nKeter Group (KETR) SA filedan S-1 statement, intending to list on NYSE under the ticker symbol \"KETR\" as a \"foreign private issuer\" because the company is incorporated and existing under the laws of the Grand Duchy of Luxembourg. Keter was initially founded as a family business in Israel in 1948 (73 years ago) but was acquired byBC Partnersin 2016. The fund helped the company to expand operations and become one of the industry leaders - Keter is now creating \"amazing spaces in and around the home through an innovative, industry-leading portfolio of durable indoor and outdoor lifestyle solutions\", according to the \"Company Overview\" section in the prospectus. So there are 2 main business segments for KETR:\n\n\"Outdoor\" - accounting for ~47% of KETR's sales, this segment \"comprises three main product solutions: outdoor furniture and planters, sheds and buildings, and deck boxes and leisure.\"\n\"Indoor\" - represents the remaining 53% of total sales and consists of the following four subsegments: home storage and organization, tool storage, cabinets and shelving, and totes and medical containers.\n\nKeter sells its products through a group of retail partners in ~100 countries around the world, mainly focusing on North American (38% of total sales) and European (54%) markets.\n\n We are focused on the attractive North America and Europe markets where our products are sold in over 70% of the top 50 hardline retailers.——Source: Form S-1\n\nThe behavior of people, which changed after the restrictive measures took place in the United States and Europe, played into the hands of the company - people began to spend more time at home, which led to an increase in their natural desire to furnish their home as comfortable as possible so that it was more pleasant to be in it. Therefore, the numbers you'll see below are the result of solely organic growth:\n\nSource: Author's notes base on S-1 filing\nI have highlighted the main financial indicators in red boxes. The revenue growth in itself for this industry is not such a significant indicator, although it amounted to 35% in 2Q 2021 compared to 2Q 2020. What matters more is the widespread improvement in financials \"below revenue\" - the revenue growth in 1H 2021 (30%) is below gross profit growth (33%), which in turn is significantly below EBIT growth (67%). I've shown it all with the 2 red arrows on the screenshot above. Such kind of operating leverage led to Keter finally becoming profitable in 1H 2021.\nAs for the company's cash flows, here we have a rather twofold situation, which, nevertheless, we can try to explain logically.\n\nSource: Author's notes base on S-1 filing\nSince cash flows from operating activities (CFO) decreased by ~17%, and capital expenditures increased from €13.5 million to €20.9 million (+55.05%), free cash flow declined by 26.11% in 1H 2021, YoY. However, I do not think that this is a negative sign because the fall in the CFO is explained by the strong growth of inventory on the company's balance sheet. This, in turn, can explain the growth in demand for the company's products - if the demand is high, then more products have to be produced. This assumption is also confirmed by the growth of CAPEX - why buy more equipment if demand is stable or declining?\nIn general, I believe that Keter is well-positioned due to the uniformity of its business structure, which is supposed to allow the company to keep on increasing its profitability, since both \"Outdoor\" and \"Indoor\" segments,dividing the revenue almost in half, have their unique catalysts - the topic of the next part of this article.\nMarket opportunities\nKeter Group believes its Total Addressable Market (TAM) has generated ~$27.8 billion across North America and Europe in 2020.\n\n The most attractive market segment within this large TAM, resin-based solutions, is estimated to have generated retail sales of approximately $9.7 billion in 2020 and is expected to grow at a CAGR of 4.4% between 2020 and 2023, nearly twice the pace of products made of other materials.——Source: Form S-1\n\nAlthough Keter's segments are closely related to each other, as I said earlier, each of them has its own catalysts for growth.\nOutdoor segment\nKeter Group is one of the biggest players of outdoor furniture and planters sub-categories in both Europe and the United States. It's also the number one resin-based player in Europe in sheds and buildings and the number two in the United States. This particular sub-market is estimated to grow at a CAGR of 5.5% for the next 8 years,according to GlobeNewswire.com.It is noteworthy that back in 2019, the growth of this marketwas estimatedat only 3.8%. This improvement, in my opinion, is due to some tailwind factors experienced by a few players in this market:\n\n Increase in the adoption of smartphones and high penetration of internet are bolstering the adoption of e-commerce across the world. This has encouraged the Outdoor Shed Market providers to opt for online selling channels to expand their respective customer bases. Raw materials and other equipment required to construct Outdoor Shed Markets are often bulky. Therefore, in conventional purchase, it is difficult to carry everything from store to home. On the other side, in online purchases, these materials and tools are delivered at a doorstep. Moreover, e-commerce allows consumers to compare the material quality and prices with all the available options. The COVID-19 pandemic crisis is compelling consumers to stay indoors. Moreover, people managed to make time to develop the outer area of their houses by opting for the do-it-yourself (DIY) approach amid the pandemic. As a result, surge in the popularity of online channels for buying essential and nonessential goods, comprising Outdoor Shed Market materials, has fueled the market growth in the last couple of years.——Source: Outdoor Shed Market - COVID Impact and Global Analysis byTheInsightPartners.com\n\nAs for Keter specifically, the company is actively developing in this sub-segment, adjusting to the \"spirit of the times\": \"In 2021, UBQ Materials, a developer of the most climate-positive thermoplastic material on the market, entered into a partnership with Keter Group to incorporate UBQ into multiple product lines; the move is meant to help the companies to achieve its sustainability goal by incorporating 55% recycled content in its product line by 2026.\"\nAnother sub-segment, outdoor furniture and planters, is also expected to grow at a good pace - the 6-year CAGR equals ~3.1%, according toPrecision Reports.\nIndoor segment\nAll of the four sub-segments here benefit from the \"continued strength of the housing market and increasing spend on home improvement, renovation, and restoration activity, and the growing interest in home decoration and organization.\" KETR, in turn, does not stand still and tries to overtake its competitors in terms of innovations in this market. For example, after the company introduced the PACKOUT brand in 2018, which allows users to stack and lock boxes, organizers, and crates in any configuration, Keter Group's share of the \"tools storage\" sub-segment in the U.S. grew from 6% in 2015 to 9% in 2020.\nHaving and operating the \"medical containers\" sub-segment, Keter Group, in my opinion, is exposed to higher growth rates compared to its peers because the most recent developments of events proved the \"essentialness\" of such kinds of products:\n\n In the US, healthcare professionals and leading organizations are distracting the flow of healthcare resources from research & development to primary care due to an increasing number of COVID-19 confirmed patients, which is slowing down the process of innovation. Moreover, the US has the maximum number of COVID-19 patients across the world. However, compared to the initial phase of the COVID-19 outbreak in 2020, various businesses in the regions were closed due to multiple reasons, such as the lockdown and reduced production of products and goods. Moreover, well-established treatment procedures and stability in the healthcare system have helped the associated businesses gain pace. The vaccines, ventilators, oxygen generators, and other medical devices and medications have gained importance and demand amid the pandemic. These products are exported to various developing regions. Boxes, molded fiber, containers, and blisters are used for the packing of these products. The supply of the packing material is stable and resumed as compared to the initial phase of the outbreak. Thus, the COVID-19 pandemic is expected to have a low impact on the medical packaging market.——Source:TheInsightPartners.com\n\nHere's what the pivot table looks like for the expected growth of all sub-segments of the company:\n\n\n\nSegment\nSub-segment\nLong-term CAGR\n\n\nOutdoor\nresin-based sheds and buildings\n5.50%\n\n\nfurniture and planters\n3.10%\n\n\ndeck boxes and leisure\n2%\n\n\nIndoor\nhome storage and organization\n~6%\n\n\ntool storage\n6%\n\n\ncabinets and shelving and totes\n7.50%\n\n\nmedical containers\n6.40%\n\n\n\nSource: Author's calculations and selection\nOverall, I believe that Keter has a lot of room to grow, given how many different opportunities the current state of the market gives. As we can see, the company can expand its presence in key markets. At the same time, competition in these markets is mostly provided by several large players. This allows Keter to continue to innovate and at the same time feel good leaning on the broad diversification of its operations.\nInstead of valuation: machine learning prediction of the IPO's underpricing\nThis is my own rubric that you won't find anywhere else. With the help of my recent articles, I'd like to share a method for predicting the amount of IPO underpricing, because this can bring a potential pre-IPO investor a colossal medium-term profit while protecting against drawdowns before the lock-up period.\n\n I devoted my bachelor thesis to finding the optimal machine learning (ML) method/model for predicting the underpricing of IPOs. I have manually collected financial and non-financial data from companies entering the US market since 2018. After excluding all SPACs and companies with missing information, I got a sample of 420 companies (observations) with 25 variables (attributes). Some feature engineering activities led me to >40 variables - the most useful for prediction from my point of view. Perhaps someday I'll share my developments on GitHub, but now I consider it my intellectual property, which is getting better day by day while the number of observations grows. I intend to use this ML model specifically for you, Seeking Alpha's readers.\n\n\n You can judge the effectiveness of my model frommy last articleon Thomas James Homes (TJH), where I presented the findings of backtesting (on real data).\n\n\n However, like any ML model, mine has some pitfalls. The most important of them is that it includes 2 variables that are still unknown to us - the share of the company that will remain with the management and directors after the IPO, and the answer to the question: \"Was the offering price range raised?\". That is why I'm going to use 2 scenarios, based on which I'll judge the possibility of underpricing - the \"bullish\" scenario (the offering price range is raised and the management has 30%) and the \"bearish\" scenario (the offering price range is not raised, 5% for the management).——Source: \"Life Time Group Holdings' IPO: Back To Normal Business Condition\"\n\nUsing the above methodology in two scenarios, I get the following results:\n[\"Bullish case\"]\n[\"Bearish case\"]\nAuthor's note: I understand that many things in my model may not be clear to you - feel free to ask in the comments.\nI'd like to draw your attention to the conclusions of \"KNN general\" and \"KNN by industry\" models - these two have established themselves as the most effective ones, capable of bringing >20% of abnormal return in comparison with the average IPO underpricing (proven in backtesting). Therefore, I recommend investors participate in KETR's pre-IPO if they have such an opportunity.\nClassical valuation approach: what P/S multiple should we focus on?\nSince we do not yet know either the offering price or the number of shares after the offering, we cannot value Keter Group. All we can do is look at the multiples of its closest publicly traded peers and focus on them when KETR's prospectus is updated.\nAs I noted earlier, KETR has few competitors and even fewer public ones. I could only find two for comparison:\n\nLifetime Brands, Inc. (LCUT);\nNewell Brands Inc. (NWL)\n\nIt is best to look at P/S multiples and the most recent revenue changes. Yes, I wrote above that revenue is not the most important thing, but it should be borne in mind that Keter has just become profitable, without having a long-term profitability history. In such cases, willy-nilly, it's better to use the Price-to-Sales ratio and match this multiple with the revenue growth rates.\n\n\n\nCompany ticker / Metric\nP/S (FWD)\nSales growth in 2Q, YoY\nSales growth in 1H, YoY\n\n\nLCUT\n0.47\n24.32%\n29.51%\n\n\nNWL\n0.99\n28.33%\n25.02%\n\n\nAverage\n0.73\n26.32%\n27.26%\n\n\nKETR\n?\n35.00%\n30.00%\n\n\n\nSource: Author's calculations based on SA data\nSo, as you can see, Keter's revenue growth is outpacing the corresponding growth rates of the nearest public peers, so I conclude that when we have more details and can value the company, we should target a Price-to-Sales multiple close to the average of 0.73x (the final multiple should be less so that there is an underestimation and upside potential). Anyway, these results are preliminary - they can change significantly when KETR finally IPOs. That's why one has to update the table above a few days before the offering.\nRisks to keep in mind and takeaway for potential investors\nThe company has a lot of idiosyncratic risks, the main ones of which I have selected below:\n\n An interruption of our production capability at one or more of our manufacturing facilities from pandemics, accidents, calamities or other causes or events affecting the global economy, could adversely affect our business, financial condition and results of operation;\n\n\n The markets in which we compete are competitive and include numerous other brands, suppliers and retailers that offer a wide variety of products that compete with our products. If we fail to compete effectively, we could lose our market position;\n\n\n Dependence on key customers and sales channels could adversely affect our business, financial condition and results of operations;\n\n\n Shortages in supply, price increases or deviations in the quality of raw materials used to manufacture our products could adversely affect our sales and operating results;\n\n\n The global nature of our Company’s operations subjects it to political and economic risks that could adversely affect its business, results of operations or financial condition.——Source: S-1 filing\n\nIt confuses me that ~48% of the company's total revenue comes from the top 10 clients - this makes KETR's operations extremely unstable if at least one of these clients refuses to cooperate further.\nIn addition, the company is exposed to currency risk, because operating in many countries, it's forced to keep records in euros, which significantly affects the financial results:\n\nSource: S-1 filing\nBe that as it may, I think that KETR's IPO is going to be successful - the stock is likely to soar by ~20-30% after the placement (depending on the final valuation and the desire of the underwriters). The company's business model has been very successful in bringing together many sub-segments - each of them is flourishing due to the changes that have occurred in society since the lockdown.\nWithout knowing the offering price and the number of shares after the IPO, I cannot recommend that you buy KETR - that is why this article is \"Neutral\". However, I'll keep a close eye on this company and wait for the prospectus to be updated.","news_type":1},"isVote":1,"tweetType":1,"viewCount":674,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"CN","currentLanguage":"CN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"upFlag":false,"length":6,"xxTargetLangEnum":"ZH_CN"},"commentList":[],"isCommentEnd":true,"isTiger":false,"isWeiXinMini":false,"url":"/m/post/862240157"}
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