Comments on: Dollarama IPO: Should you bite?

By: Matt S (Vancouver)

Matt S (Vancouver) — Fri, 09 Oct 2009 15:29:51 +0000

Spent 1min looking over 10k @ sec.gov.
IMO, too much debt relative to earnings and corporate structure too complex for whatever reasons.
http://www.sec.gov/Archives/edgar/data/1363456/000119312509081781/d10k.htm
I’m looking at balance sheet for Dollarama Group L.P. on page 43, the long term debt on the balance sheet for Dollarama Group Holdings L.P is even worse.

By: Thicken My Wallet » Blog Archive » Why catching IPO fever will make you sick

Wed, 07 Oct 2009 08:58:06 +0000

[...] a sample size to predict medium to long term trends, the IPO market has nowhere to go but up. The Dollarama IPO could merely be a harbinger of a more robust IPO [...]

By: gene

gene — Mon, 05 Oct 2009 16:41:16 +0000

@John D: Thanks for the analysis. The low book value and cash flow scared me away from this IPO. It kind of reminds me of a private equity (or leveraged buyout), where the company is saddled with a lot of debt to take cash out of the company. The debt to equity in this case is too high for my liking.

I prefer small growth stocks to have little to no debt on the balance sheet and a nice cash position. They aren’t all that hard to find. Besides that, retail is generally an ugly business, the barriers to entry are too low. Dollarama is one of the better operators in their space, but it is a crowded market at the low end.

By: John D

John D — Sun, 04 Oct 2009 03:41:37 +0000

@ James – valuing the entity using a net asset valuation wouldn’t be appropriate in this case as the company appears to lease its stores (check out note 3 of the Feb 2009 financial statements – no land and building!) . Generally companies are valued based on expected future cash flow, unless they are in a distressed position.

If they were in a distressed position, there are lots of fishy things on the balance sheet. Total assets is $1.36 billion, liabilities $1.26 billion (net assets of only $100 million). Goodwill of $707m (generally valuable only in the continual operating of the company); intangible assets such as “brand name” of over $100 million. There would not even be enough cash left over for debtholders. However, this is irrelevant if we assume that there is little risk the company will not operate prospectively.

If this company is valued at 1.25 billion by the IPO, my initial reaction would be that it would be a poor valuation. While the company is generating lots of operating cash flow ($116 million in 2009) the amount required to continually invest and grow the company (and pay off debt) is quite high. Net cash flow for 2009 was only $40 million! That’s less than 4% return on cash flow. Even when you incorporate a growth rate, it still doesn’t look attractive. As with many retail-type investments, it’s simply hard to get your money back due to competitiveness & constant updating of fixed assets.

This IPO smells like an opportunity for the original investor, who will still own a majority ownership, to get out down the road depending on what happens with the economy (and other current investments / opportunities). They’re clearly creating options for themselves, at the very least.

Another quick comment: the CFO just left. I believe I read in a news report that he was retiring. Whether this was actually the case or not, a CFO leaving can increase the risk associated with an investment.

By: The Financial Blogger » Blog Archive » Financial Ramblings

The Financial Blogger » Blog Archive » Financial Ramblings — Sat, 03 Oct 2009 18:50:40 +0000

[...] Canadian Capitalist talks about Dollarams IPO. [...]

By: Intelligent Speculator | Financial Ramblings

Intelligent Speculator | Financial Ramblings — Sat, 03 Oct 2009 18:36:07 +0000

[...] in buying shares of Dollarama? I’m far from convinced but Canadian Capitalist brings up some good points in his [...]

By: Canadian Personal Finance Blog » Blog Archive » Random Thoughts: October Begins

Fri, 02 Oct 2009 10:09:06 +0000

[...] Capitalist is dealing with a family emergency, but before he went Radio Silent he commented on the Dollarama IPO when I first read about this IPO, I thought it was for a stock that was going to sell for a buck, [...]

By: CanadianInvestor

CanadianInvestor — Wed, 30 Sep 2009 18:40:55 +0000

It would be worthwhile to compare Dollarama with NorthWest Company, which runs Giant Tiger in parts of Canada. NWC has a real track record – it’s the oldest company in Canada, dating back to the fur trade days.

By: Henry

Henry — Wed, 30 Sep 2009 01:34:16 +0000

Do you know if Dollarama will be included in TSX Composite Index?

A boring, but important question.

By: Phil S

Phil S — Tue, 29 Sep 2009 21:33:04 +0000

I’ve only ever gone to a dollar store once to pick up paper plates and plastic cups. I think I overpaid for those items as the plates might as well have been just bond paper and the cups disintegrated in your hand. I immediately stopped shopping at dollar stores in general and wondered who would ever buy that junk? The answer apparently seems to be – a lot of people.

Still I’m not convinced on their stock as I’m not sold on their “product” so to speak.

And I’m not sure we can believe what any of the private equity guys are saying if the transactions don’t show up on any publicly accessible books. I’m sure they’re making a killing on the deal, but it’s bad PR to say so, so they’re keeping a low profile on this…