Holmes Place IPO numbers don't add up

Holmes Place Photo: PR

The owners are planning a huge valuation for a company whose net profit is only NIS 6.5 million.

The latest company to jump on the Tel Aviv Stock Exchange (TASE) IPO bandwagon is Holmes Place Israel, which is planning an issue of shares and an offer for sale by its controlling shareholders. The shareholders involved include Green Lantern - controlled by partners Richard Hunter, Josef Elias, and Danny Ben-Rei - Allan and Maureen Fisher, and Nathan Kirsh, owner of Holmes Place, the parent company of the Israeli branch holding the IPO.

Holmes Place Israel is aiming to take advantage of the boom in fitness and health. The company stated, "On a global level, the fitness club market is showing a high growth rate." In 2015-2017, the annual growth rate in fitness club subscribers was nearly 10% in Israel and 6% worldwide.

It is believed that the Holmes Place Israel controlling shareholders are planning to offer shares at a company value of NIS 325-350 million, even though the company's profit is only a few million shekels a year. The company is planning to issue 10% of its share capital for NIS 30 million. Green Lantern (45%) and the Fisher and Kirsh families (40% through HPWW) are seeking to raise NIS 80-90 million by selling some of the shares they hold before the offering. After the offering, the holdings of the Fisher and Kirsh families (through HPWW) will fall to 24%, and Green Lantern's stake will drop to 20%. Discount Underwriting and Issuing is leading the IPO.

The exit is unusual for Green Lantern, led by Richard Hunter, who formerly managed Shufersal Ltd. (TASE:SAE) and McCann Erickson Israel. Green Lantern acquired 45% of Holmes Place Israel in 2014 for only NIS 30 million, meaning that it is likely to make back its investment four times over in just three years. In addition to its investment in the fitness club chain, Green Lantern is also a partner in the Super Cofix chain of neighborhood supermarkets (a subsidiary of the Cofix chain), Gad Dairy, and other businesses.

Alon Holdings Blue Square - Israel Ltd. (NYSE: BSI; TASE: BSI) controlling shareholder businessman Moti Ben-Moshe is also likely to become a party at interest in Holmes Place following the offering. Ben-Moshe signed an agreement with Green Lantern to buy some of its Holmes Place Israel shares in the offer for sale, which will give him a 7.5% stake in the chain following the IPO. Another party at interest is Poalim Ventures, to which 15% of the shares were allocated for NIS 24.5 million. Poalim Ventures' stake will fall to 9% after the IPO.

Holmes Place Israel posted a NIS 6.5 million net profit for 2016, 110-120% more than its profit in each of the two preceding years, after recognizing NIS 11.5 million in income tax for 2016. The EBITDA reported by the company, including its recent acquisitions, amount to NIS 50 million, following a NIS 24 million increase in the past year. Adjusted EBITDA grew 45% to NIS 22 million in the first half of the year.

The company's figures also show that its depreciation and investments have detracted from its profit, and that write-offs of excess cost posted by Holmes Place Israel as a result of its acquisition of Go Active are projected to fall by 80% by 2019. The company is planning its IPO at a multiple of 8 for its EBITDA, lower than the multiple for the other offerings on the TASE this year.

Holmes Place Israel's annual revenue from current activity grew 14% to NIS 303 million following the acquisition of Go Active, and its gross profit jumped 29% to NIS 35 million, while its operating profit was up 45% to NIS 6 million.

The positive trend continued in the first half of 2017, with revenue growing 32% to NIS 180 million, following the consolidation of Go Active and the opening of more clubs. Holmes Place Israel 's gross profit rose 25% to NIS 22 million in this period, while its operating profit went up 35% to NIS 7.3 million. Net profit was NIS 4.5 million, compared with a loss in the corresponding period in 2016 and a NIS 6.5 million profit for all of 2016.

Holmes Place Israel reported NIS 92 million in equity, NIS 83 million in current liabilities, and NIS 103 million in long-term liabilities as of June 30, 2017, while the company had only NIS 3 million in cash as of that date.

Holmes Place Israel operates 34 health and fitness clubs and had 110,000 subscribers in the first half of the year, making it Israel's largest health and fitness chain.

Published by Globes [online], Israel Business News - www.globes-online.com - on November 9, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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Holmes Place Photo: PR
Holmes Place Photo: PR
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