Dick Smith’s astonishing turnaround from Woolworths’ $20 million discard to a listed company valued at more than $500 million has failed to convince some analysts.
The electronics retailer is set to go public in December, as its private equity owners Anchorage list it on the Australian share market.
“I wouldn’t touch it,” Invast chief market analyst Peter Esho said.
“There’s nothing compelling in it as an investment at all.”
Anchorage is selling 66 per cent of the company’s shares at $2.20 each, which values the company at $520 million.
The float is expected to raise $345 million for Anchorage, which will retain a 20 per cent stake in the company, while Dick Smith management will collectively hold another 11.5 per cent.
It comes just over a year Woolworths offloaded the electronics retailer to Anchorage for $20 million to remove what had been a drain on its balance sheet.
Woolworths received a further payment of more than $70 million earlier this year in exchange for its rights to a portion of the proceeds of the float.
Dick Smith boss Nick Abboud says the company has undergone a significant transformation under Anchorage, and is well placed to benefit from an improvement in consumer spending.
Mr Esho said the retailer had lifted its earnings through cost cutting, but it needed to spend a lot of money upgrading its stores.
“There is going to have to be some significant reinvestment, it doesn’t really matter what the earnings base is,” he said.
“In terms of free cash flow over the next five years I don’t think there will be much going to shareholders.”
CMC chief market analyst Ric Spooner said Dick Smith was a “solid and easily recognisable brand”, but the consumer electronics sector was unlikely to be a strong performer, even if consumer spending picks up next year.
“It’s a space that would only interest me at the right price,” he said.
“Given the growth outlook and risk profile I’d be looking for an attractive entry price for these sorts of stocks.”
Dick Smith expects to list on the share market on December 12.