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Tegel shares gain 8% so far as NZX cheers first IPO of 2016

Tuesday 3rd May 2016

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Tegel Group Holdings, the poultry group taken public by private equity firm Affinity Equity Partners, rose 9 percent in its NZX debut as investors welcomed a business with market dominance and potential to lift earnings at home and in export markets.

The shares first traded at $1.69, from its initial public offering price of $1.55, and were recently at $1.67, valuing the company at $594 million. That ranks it ahead of Heartland New Zealand in terms of value, although vendor Affinity's remaining 45 percent holding would be deemed a strategic holding and excluded from the free-float calculation for inclusion in the S&P/NZX 50 Index.

New Zealand's biggest poultry business is being taken public by its second private equity owner, Affinity Equity Partners, which acquired Tegel in a leveraged buyout from Pacific Equity Partners and ANZ Capital in early 2011. PEP had, in turn, bought Tegel from HJ Heinz in 2005. Tegel's disclosure documents forecast 23 percent growth in pretax earnings this year and 12 percent in 2017 while its projections show export sales rising to 25 percent of total revenue over the next five years, from 18 percent this year.

"It's a great initial debut - the market has recognised Tegel's cash-flow growth potential," said Shane Solly, a portfolio manager at Harbour Asset Management, which owns Tegel stock. "The market has good appetite for well-structured and well-priced stocks."

Affinity has reduced its stake from 87 percent through the offer, with at least half to be held in escrow until the company's 2017 results. It could sell up to 50 percent of its holding after the first-half results, provided Tegel's shares spend 10 consecutive trading days at least 20 percent higher than the offer price.

Affinity "wanted this to list and list well," Tegel chairman James Ogden told BusinessDesk. "They left some money on the table," he said in reference to the sale.

Investors have said export growth is a key to its performance and its ability to develop and expand offshore markets would be watched closely by the market. It will target the Philippines, the Middle East, Japan, Singapore, Korea and Taiwan, adding to existing markets in Australia, the United Arab Emirates, Pacific Island states and Hong Kong, according to its IPO document.

Ogden says Tegel has been well received in Australia, its biggest export market, especially in bidding for contracts in the quick service restaurant (QSR) sector. It already counts McDonald's, Subway, KFC, Burger Fuel and Hell Pizza as New Zealand customers.

The IPO managers Deutsche Craigs, Goldman Sachs and First NZ Capital had to drum up appetite for Tegel shares in a stock market that Bloomberg News reported this month was Asia's most expensive. Added to that was the negative factor of Tegel's private equity ownership in a market where the Dick Smith retail chain has suffered a very public demise after being taken public by Anchorage Capital Partners in 2013.

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