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Will Dr Martens float prove to be a comfortable fit for investors?

Written by on 25/01/2021

After a fallow period for flotations, understandably enough given the pandemic, a clutch of companies are now heading to the stock market.

The successful IPO in September last year of The Hut Group, the ecommerce specialist, proved there was an appetite among investors for new issues and especially those with a tech flavour.

Accordingly, this month has seen confirmation that the online greetings card retailer Moonpig is set to come to market, while others expected to launch Initial Public Offerings (IPOs) this year include the cross-border payments company Transferwise and the cyber security company DarkTrace.

Dr Martens has been making its iconic boots since 1960. Pic: Dr Martens
Image: Dr Martens has been making its boots since 1960. Pic: Dr Martens

Speculation is also rife that the online food delivery firm Deliveroo is set to come to market after it last week announced that Lord Wolfson, the Next chief executive, is joining its board in what is his first non-executive directorship.

While all of those businesses will be sold to would-be investors as tech companies – Moonpig, for example, is highlighting the customer data it collects every time one of its cards is sold – the other big IPO currently being marketed is decidedly more traditional.

Dr Martens, the boot and shoe maker famous for kitting out musicians such as Pete Townsend, Sid Vicious and Lady Gaga, kicked off its roadshow to investors today with the shares expected to make their debut next week.

On paper, it ought to be a relatively easy sell, as nearly everyone who has gone through adolescence since 1960, when the shoes first went on sale, must have owned a pair of Docs at some point.

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The brand is an icon of youth culture and as dominant in its sector as, say, Levi’s are in jeans.

As the company itself has put it in its flotation documents: “Dr Martens started out as a humble work boot, but was quickly adopted by youth cultures as a symbol of their individual self-expression and rebellious spirit.

Moonpig birthday cards
Image: Moonpig is another company set to come to market

“Six decades on, wearers continue to adopt the brand to express their unique style and alternative spirit but do so through a modern lens.”

That has been borne out by its recent sales.

With physical retail in trouble, Dr Martens has proved immune, as the name is sufficiently well-established to be able to sell directly to consumers without going via third party retailers.

It owns more than 130 of its own stores as well as selling directly to consumers online.

The sales have proved as resilient as the boots themselves: revenues in the six months to the end of September last year were up 18% year on year to £318.2m while earnings before interest, taxation and accounting adjustments were up 30% to £86.3m.

It has been an impressive turnaround.

The business was in real trouble and came close to going bust in 2003, the year it stopped making shoes in the UK and moved production to Thailand and China, while even a decade ago it was vulnerable to discounting by retailers.

So far, so good.

Kenny Wilson, CEO, Dr Martens
Image: Chief executive Kenny Wilson will reportedly see his stake valued at £58m Pic: Dr Martens

However, for a number of reasons, some people could be forgiven for being sceptical about investing.

The first is the identity of the current owner, the private equity firm Permira, which bought Dr Martens in 2013 for £300m from the founding Griggs family.

Several businesses in which Permira was previously an investor have performed disappointingly in recent years after coming to market.

They include the AA, the roadside rescue provider and Just Retirement, an annuity provider.

The second issue is the valuation Permira is seeking.

It and other investors are looking to sell a 35% stake in the business at a price that would value the whole of Dr Martens at between £3.3-£3.7bn.

At the middle of the range, that is more than five times the £672.2m worth of sales the company clocked up during the year to the end of March last year, while it is nearly 19 times earnings of £184.5m during that period.

And that is earnings before interest, taxation and accounting adjustments.

Distance runners will be allowed to wear Nike Vaporfly shoes, World Athletics has said
Image: Dr Martens’ price-earnings rating will put the likes of Nike in the shade

Pre-tax profits during the 12 months to the end of March last year came in at £101m – meaning that, at the middle of the range, the company would be valued at nearly 35 times earnings.

The FTSE-100 traditionally trades on a price-earnings multiple of around 15 times and so, even taking into account its unique qualities, Dr Martens is being given a very racy rating – one that even puts the likes of Nike and Adidas in the shade.

A third factor to be considered is whether the current sales environment will last.

Dr Martens has enjoyed phenomenal growth in recent years but, as past experience has shown, the brand can be susceptible to changes in fashion.

It enjoyed strong sales in the 1990s on the back of the popularity of grunge music but by 2003, the year the business came close to bankruptcy, its sales had halved.

Some commentators believe the brand is going through another ‘moment’ now because, with millions of people confined to working from home during the pandemic, consumers are spending more on casual clothing and footwear and less on formal garb.

The sales growth the brand has enjoyed in recent years could prove unsustainable.

Lastly, there is the amount that the company’s senior management are expected to make from the IPO.

Boxes of Dr. Martens shoes are pictured in the warehouse of local footwear retailer "Pomp It Up" in Bussigny near Lausanne, Switzerland 24 Aprill, 2019.
Image: Dr Martens has enjoyed strong growth in recent years

The Sunday Times reported yesterday that Kenny Wilson, the Dr Martens chief executive, will see his stake in the business valued at £58m even though he has been in the job less than three years.

He is said to be one of 22 staff whose shares will be valued at a total of £350m.

Such rewards are not a good look when millions have lost their jobs during the pandemic.

Not that this IPO will fail to raise the sums required.

No fewer than nine banks are involved in bringing the company to market, led by Goldman Sachs and Morgan Stanley, while others involved include the likes of HSBC, Barclays and Bank of America.

The involvement of so many precludes much in the way of independent analysis of this company and its prospects because many analysts will be, in the industry jargon, ‘conflicted’.

Moreover, with so many attractive tech-related IPOs on the horizon, the bankers involved in this IPO will have been telling fund managers that, if they want to get their hands on shares in some of the other companies due to come to market, they will have to agree to buy shares in this one.

Accordingly, it was no surprise to learn today that the issue had already been fully covered, which means buyers have been found for all the shares being sold and at the upper end of the price range.

It is now 39 years since the comedian Alexei Sayle sang “Doctor Marten gave his boots to the world/so that everybody could be free/they’re classless matchless ageless and waterproof/and retail for only 19 pounds and 99p”.

A pair of classic 1460 Docs will now cost you £149.

The shares, it seems, will have a luxury price tag to match.

 Sky News

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