Hey Kogan, where's retail investors' access to your IPO?

Pure online retailer Kogan to list on the ASX

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published June 7, 2016 10:28 am AEST

Online retailer Kogan is planning to list on the ASX, but it's unlikely that retail investors will be able to participate – even if they want to.

You see, like many companies, investment banks and brokers helping the company to list on the ASX will be doled out shares to sell to their favoured clients, while retail investors will almost certainly be ignored.

There is the new OnMarket Bookbuilds option, which is much more transparent and allows all investors access to an IPO (no matter who they have a brokerage account with).

And with the reported strong demand from investors – The Australian reports that the offer was four times oversubscribed – Kogan could have received more funds or a higher price for its shares, and likely paid less in fees if it had used the OnMarket BookBuilds option.

Kogan is reported to have offered $50 million worth of shares at $1.80 each to investors, valuing the company at $140 million enterprise value. That would also represent 20x forecast earnings before interest, tax, depreciation and amortisation (EBITDA) for the 2017 financial year (FY17). Kogan forecasting EBITDA of $7 million in FY17.

Kogan has around $200 million of sales purely online, has 2.3 million active subscribers and sells 28,000 products. The company's nearest competitors are most likely Grays Ecommerce Group Ltd (ASX: GEG) and eBay, but Kogan also competes against the likes of JB Hi-Fi Limited (ASX: JBH), Harvey Norman Holdings Ltd (ASX: HVN) and the presumably soon-to-be-listed The Good Guys.

Grays offers online consumer auctions in key categories of wine, consumer electronics, IT, appliances, home furnishings and jewellery. The company also had a number of retail websites such as oo.com.au, dealsdirect.com.au and topbuy.com.ay – but these were sold to MySale Group plc late last year.

Foolish takeaway

Having revolutionised retailing in Australia, Kogan could have offered investors a revolutionary way to invest in the company, but alas it appears that is now unlikely.

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