Currency a key issue for Pumpkin Patch IPO

Duncan Bridgeman

Friday 30th April 2004

A key factor for investors looking for a slice of Pumpkin Patch will be what impact the recent high kiwi dollar has had on the children's clothing retailer.

The company will open its books to the public for the first time on May 17 in a prospectus outlining its $120 million initial public offering.

Analysts said currency impacts on the company's Australian and New Zealand businesses would be scrutinised closely to give an indication of underlying operating performance.

"A lot depends on the entry price but it will be interesting to see where the profits are generated," one retail analyst said yesterday.

"A key issue will be: has the exchange rate boosted them and will some of those gains reverse?"

Pumpkin Patch, which has 64 stores in Australia and 37 in New Zealand, is planning to list on the NZX in June.

The company differs from most other retailers here by having an international flavour. It also has 11 stores in the UK and a handful of wholesale arrangements with retailers in the US and Ireland and one in Dubai.

Investors will be interested to see how successful the company's expansion into Australia has been as many New Zealand companies have struggled across the Tasman.

Executive chairman Greg Muir said he was restricted in commenting on the company's future plans until a prospectus was issued.

Of the $120 million, the company is intending to issue $40 million in new capital.

The rest of the shares were to be sold by some of the company's existing shareholders.

Companies Office records show eight major shareholders, the largest of which is Auckland-based Wynyard Wood Trustees, with 49.5% of the existing total of 1.28 million shares.

While new equity is typically viewed as more favourable than existing shareholders selling down, the market is used to private equity owners raising capital and taking some out at the same time, the analyst said. It all depends on what level of equity is being retained and what clauses are kept in terms of retention.

"Obviously one would be a little bit cautious if this was the first of many of these kinds of selldowns and whether they were looking to get out completely.

"The market is happier if the major stakeholder has a significant amount of skin in it going forward."

Investors will also be sizing up the competitive environment Pumpkin Patch operates in.

The company primarily sells children's clothes, with emphasis on higher quality and design.

Independent retailers such as The Warehouse and Postie Plus sell baby and children's clothes but they tend to target the lower end of the market. Pumpkin Patch is likely to concentrate on designer clothes targeted at the middle and upper end.

Multi-national giants Nike and Gap have developed children's clothing chains but are unlikely to compete directly with Pumpkin Patch.

The clothing market in general has been tough in recent times and the toddler and children's market has its own challenges.

Obviously, children tend to go through clothes at a higher rate than adults, meaning many families often resort to "hand-me-downs" or cheaper clothing options.

However, the Pumpkin Patch brand has developed a strong level of loyalty from children and their parents and its successful mail-order service offers good promotional opportunities.

The company also owns Urban Angel and recently bought Hallenstein Glasson's HBK Girl chain, which caters for 8-to-14-year-olds.

Pumpkin Patch shares will be allocated to New Zealand retail investors and New Zealand and Australian institutional investors.

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