Online Underwear Retailer Step One is looking to IPO on the ASX potentially as early as late 2021. The Step One IPO would be one of the largest underwear and clothing companies to hit the boards since the Iconic Bonds and Pacific Brands delisted from the tape in 2016.

Step One IPO - The group currently sell 4 x varieties of men's underwear
Step One IPO – The group currently sell 4 x varieties of men’s underwear

Step One IPO Price

According to an Australian Financial Review article, Step One and broker Morgans kicked off the pitch this week, asking potential investors to think about buying shares at $1.53 each, which implied 16.1 times forecast EBITDA for the 2022 financial year.

Step One IPO Price: $1.53
Total proceeds of the Offer: $81.3 million
Indicative market capitalisation at Completion: $283.6 million

Step One appears to be jumping through the regulatory hoops to prepare for a listing and fronting potential investors over the past month.

Step One IPO Financials

Step One expects to report around $74 million in revenue with a gross margin of over 83% equating to $61.8million in FY22.

Forecast Revenue$74million
Forecast GP61.8%
GP %83.5%
Forecast FY22 EBITDA$10.5million
Expected Market Cap$283.6million
Expected P/E Ratio27x
Step One IPO Summary of Financials

The company according to the estimates would be EBITDA positive and at an expected market capitalisation of $283.6million would equate to a price to earnings ratio of 27x

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PE 20+: The company is overvalued/has high investor sentiment regarding growth

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Brokers seem to think the IPO will be well placed by potential investors. Further information on the IPO will be provided when the prospectus is released.

Step One Shares – Potential Future Plans

The group seems to only offer 4 ranges of male underwear:

  • Trunks
  • Boxer Briefs
  • Boxer Brief / Fly
  • Juniors Range

Potentially the group could look to expand their existing range with new patterns that may be able to be sold at a slightly higher premium. The company also is men’s only at this stage, however, we could see the potential for the group to leverage their existing marketing skills to roll out a female range.

The company appears to want to utilise a portion of the funds to expand to the United States with over $10million of the IPO proceeds to be put towards this.

How Does Step One Compare to Bonds

The last listed consumer underwear brand Pacific Brands Group (Bonds) was delisted from the ASX back in 2016 (PBG:ASX) due to being acquired by Hanes Australasia.

Pacific Brands group entailed a mass of large iconic Australian brands such as Bonds, Hard-Yakka, Superdry, King Gee and Tontine. Some of the brands listed were fully owned by the group (bonds), whilst held licence agreements for other brands.

Pacific Brands Revenue Mix / Brand
Pacific Brands Revenue Mix / Brand

Hanes Australasia (NYSE:HBI) Acquired Pacific Brands at $1.15 per share, which valued the company at a total of $1.1billion. The board of Pacific Brands unanimously recommended the proposal which valued the company at a 13.5x F15 EV / EBITDA and 12.0x F16 EV / EBITDA based on broker consensus

The valuation of the acquisition by Hanes Group represented:

  • 28.6x F15 P / E, 16.2x F15 EV / EBIT and 13.5x F15 EV / EBITDA1
  • 21.3x F16 P / E, 13.9x F16 EV / EBIT and 12.0x F16 EV / EBITDA based on broker consensus estimates
  • Compares favourably to transactions such as PVH Corp / Tommy Hilfiger of 8.3x EV /EBITDA
  • HanesBrands / Maidenform of 9.5x EV / EBITDA
  • PVH Corp / The Warnaco Group of 9.7x EV / EBITDA and HanesBrands / DB Apparel of 7.5x EV/EBITDA

Pacific Brands Group turned over $1.32billion of revenue for the year ended 2014. However back in 2008, the group was turning over more than $2billion a year.

Step One Clothing IPO – Prophets Take

The Step One IPO looks like an interesting prospect, however, priced at a 16x FY22 EBITDA multiple seems a little rich when looking over the valuations that were placed on companies back when Pacific Brands were acquired by Hanes Group.

The business has expanded from Australia to now include the UK and US, however as a recent entrant in the UK and US it will be important to review if the same level of growth is occurring in new regions. Whilst the expansion to the US could be a large catalyst for the shares it could also be one of the largest risks.

Prophet will review the prospectus when it is released by Morgan’s and provide any relevant updates to this article.

We are also unsure of future potential growth in the Australian market should the proposed US and UK expansion not succeed.

If you were interested in checking out some other IPO’s from 2021, here is our list of top 9 for the year.

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