The Lynch Group Holdings Limited (ASX: LGL) share price has commenced trading on the ASX today following the successful completion of its $206 million initial public offering (IPO).
However, despite the market pushing notably higher, it hasn't been a great debut for the wholesaler of floral and potted products.
At the time of writing, the Lynch Group share price is fetching $3.48. This is down almost 3.5% from its listing price of $3.60.
What is Lynch Group?
Lynch Group was founded in Australia all the way back in 1915 by the family of Leo Lynch.
It was initially a floral grower and wholesaler but eventually expanded to become a vertically integrated wholesaler which pioneered supply to major supermarkets and into the Chinese market.
In 2015, Next Capital acquired a majority interest in the Lynch Group to accelerate its growth trajectory.
Since then, the company has successfully continued to execute on its growth strategy, which included the acquisition of a 20% interest in VDB Asia – a premium rose grower in China with two farms focused on production for the Chinese domestic market.
Some of the proceeds from the IPO will be used to acquire the remaining 80% stake in VDB Asia.
What is its market opportunity?
According to its prospectus, the company operates in an Australian market worth ~$1.4 billion and a Chinese floral sector estimated to be worth $19 billion.
Management notes that flowers are a unique product category that are highly perishable and have a short vase life. This results in a complex and time‑sensitive supply chain with high barriers to entry.
Furthermore, access to robust breeds, premium growers, delicate handling processes and end‑to‑end cool‑chain integrity are important in ensuring that flowers reach the desired end‑market in a saleable condition and with optimal vase life. This is something Lynch Group has in abundance.
Current Australian customers include Aldi, Bunnings, Coles Group Ltd (ASX: COL), David Jones, IGA, and Woolworths Group Ltd (ASX: WOW). Whereas in China, the company typically sells its products to wholesalers via its WeChat-based web shop.
Forecasts
Lynch Group is expecting to deliver strong earnings growth in calendar year 2021.
Its prospectus forecast is for pro forma revenue of $329 million, pro forma EBITDA of $54 million, and pro forma NPATA of $29.3 million. This means that its pro forma revenue and EBITDA will be up 16.1% and 25.7%, respectively, year on year.
Lynch Group's CEO, Hugh Toll, appears positive on the future.
Commenting today, he said: "Over our 100-year history, Lynch Group has established itself as a pioneer in the Australian floral industry becoming the #1 wholesaler and partner to supermarkets in the floral category. Our know-how, systems and expertise are proving highly transferable into the significantly larger and fast-growing Chinese market, where we are replicating the success of our vertically integrated Australian model."
"Led by a highly experienced management team and Board, we are well positioned to benefit from the continued structural shift to supermarket channels in the Australian market. There are also compelling opportunities in the developing Chinese market to continue to increase our production capacity, and partner with more retailers to grow our direct-to-consumer channel as we build out additional processing capacity in China," he concluded.
