After years of waiting, a new and large listing is about to happen on the Zagreb and (Warsaw) Stock Exchanges. Studenac Group is the Company in question, with a maximum transaction amount of EUR 183m, while the market capitalization of the Company upon listing could reach EUR 523m. Up to 44% of the transactions could be offered to Polish and Croatian retailers. But this IPO, compared to all previous ZSE ones, comes with a specificity of dual listing. It means that the Polish central clearing house is the primary depository while SKDD is secondary. If everything goes as planned, the Company is to start trading on 10 December 2024. According to our estimates, the IPO EV/EBITDA multiple ranges between 10.3x and 10.7x. In today’s blog, find out if this valuation is well-rounded and what the dual listing means for retail investors.

Studenac Group, by now a hallmark name in Croatia for a wide network of small convenience stores, has for the last couple of months pushed forward with its goal of an IPO, on both the Zagreb and Warsaw stock exchanges. Last Wednesday, 20 November, the commencement of the book-building process for institutional investors began.

Many of the other details for the IPO have already been announced. The subscription period for retail investors is set from 20 – 27 November, with 27 November marking the end of the book-building process, as well as the subscription period for retail investors. In other words, the exact details of the number of shares, that would be offered, how much of these would be offered to each category of investors, as well as the final price should be known in a couple of days.

Going into the details of the offer, up to 55,170,593 ordinary shares, representing 35% of the Company’s increased share capital will be offered. These include up to 24,066,667 new shares, representing app. 15% of the Company’s increased share capital, as well as 31,103,927 existing shares, representing app. 20% of the Company’s increased share capital.

The price range for the offer is set at PLN 13.60 – 14.40 per share in Poland, and at EUR 3.14 – 3.32 per share in Croatia. As such, if all the offered shares are taken up, the implied market capitalization (including the new shares) would amount between PLN 2.144m – PLN 2.270m, or EUR 495m – EUR 523m. Breaking this down further, the offer size is set at PLN 750m – PLN 794m, or EUR 173m – EUR 183m, of which between PLN 327m / EUR 76m and PLN 347m / EUR 80m comes from the sale of new shares, while between PLN 423m / EUR 96m and PLN 448m / EUR 103m comes from the sale of existing shares.

The sellers include Enterprise Investors, selling up to 29,803,993 shares, representing 25% of their current holding, and minority selling shareholders, which are jointly selling up to 1,299,934 shares. Now that we have got the details of the IPO out of the way, the question remains, what are the Group goals following the IPO?

To understand this, we have to look at the Group’s business model and future targets. Studenac Group as is well known, is the largest food retailer by the number of stores in Croatia. Of course, this does not make the Group the largest retailer overall, as its focus has been on smaller, more spread-out, “neighborhood” stores, rather than large-scale supermarkets which are quite predominant in Croatia. Since 2018, the Group has expanded significantly, both organically and inorganically. During this time, it has acquired retailers such as Istarski Supermarketi, Lonia, Sonik, Bure Trgovina, and several others.

None of these retailers were well-known (outside of their main region(s) of operations) nor were they able to effectively compete with larger retailers. However, under the Studenac brand, over 1,400 stores were acquired, and as such economies of scale could be counted on.

Studenac Group revenue development (2021 – 8M 2024, EURm)

Source: Studenac Group, InterCapital Research

Just in the period from 2021 – 2023, the revenue CAGR was 47%. This was a mix of acquiring new stores, as well as expanding their own network throughout Croatia, which brings us to the IPO itself. The proceeds from it, as communicated by the Management are to be used to finance new acquisitions, expand the store network, and reduce the debt levels, which combined with the expectations of better profitability (especially on the EBITDA line) should lead to better net debt/EBITDA levels. Combined with its solid financial results, the Group aims to in the short term, open 140 – 160 new stores per year, while in the medium term, they plan on expanding this to app. 200 – 250 store openings per year. Furthermore, through M&As, they expect to acquire 1,200 new stores by the end of 2028. While no targets have been announced yet, it is safe to say that smaller regional food retailers are the target. Combined, the number of stores could reach app. 3,400 by the end of that year.

If successful, the Group expects this to bring a revenue CAGR of 25-30% in the coming period. However, revenue growth alone would not be enough to fuel the Group’s appetite, and improvements in EBITDA and other profitability lines are also planned. The EBITDA margin has already improved compared to the 2021 – 2023 period, where it stood between 8.7% and 10.1%, to app. 12% during the 8M 2024 (latest available data).

Initiatives for EBITDA growth include pricing optimization, traffic uptake, basket size increase, promotions and loyalty programs, and private label penetration, among many others. In terms of net debt/EBITDA, on a post-IFRS 16 standard, it is expected at 2.5x by the end of 2025, 1.5x by the end of 2026, and to be almost entirely neutral by the end of 2028.

Studenac is also driving its expansion into Slovenia, with “White space” (untapped & underserved market opportunities, where there is expansion potential) amounting to 3,200 in Croatia, and 700 in Slovenia, totaling 3,900. Furthermore, Studenac noted that it has a Capex of EUR 100-120k per store opening.

In other words, there seems to be some potential behind this Company, but a valid question to ask would be: Are there any downsides? Firstly, one would think of competition, especially in the M&A activity of smaller stores. While competition does indeed exist in the retail market, it comes mostly from larger retailers. This is what differentiates Studenac, its focus on smaller stores means that in this category, they do not have that much competition.

Furthermore, none of the larger retailers are trying to consolidate the smaller retail market as Studenac is. As such in this sense, the Group’s expansion goals, are far more likely to succeed. On the other hand, the large retailers are dominating the overall market, especially in areas where both Studenac and them are available. This is unlikely to change, especially considering the fact that those larger retailers can more easily compete on prices.

This brings us to the last point, i.e. are the Group’s IPO goals (and expectations) too high? To understand this, a look back at the history and some competition is prudent. While due to their business strategy, it is rather hard to find direct competitors in the region, several good examples do exist: Dino Polska and Žabka Group.

Dino Polska, Žabka Group EV/EBITDA during IPO vs. current EV/EBITDA ratios (left), Studenac Group IPO EV/EBITDA estimates* (right)

Source: Bloomberg, Companies’ data, InterCapital Research

*Estimates based on the projected price range

As we can see, both of these companies were listed with EV/EBITDA ratios of over 10x. According to our estimates, based on the final price and number of shares sold, Studenac Group would have an IPO EV/EBITDA ranging between 10.3x and 10.7x. In other words, in line with these other 2 companies. Of course, these companies are far larger, with Dino Polska and Žabka Group’s market cap standing at EUR 8.9bn and EUR 4.2bn, respectively. Taking all of this into account, it doesn’t seem that Studenac is “expensive”. However, the true measure of the success of the IPO and its goals will be seen in the years after. While Žabka was just listed last month, Dino Polska has been listed for over 7 years now.

Dino Polska Revenue, EBITDA, net income CAGR, price change (Since IPO, April 2017 – 2024 YTD)

Source: Company data, Bloomberg, InterCapital Research

While a single company does not make a rule, several things can be pointed out. Since its listing, Dino Polska has significant double-digit CAGR across all of its most important lines. This was reflected in the share price, which grew by more than 1,070% since the IPO. In other words, if Studenac Group manages to achieve all it set out to do, with similar growth rates as to Dino Polska, the current listing multiples do not seem expensive. Execution will be paramount to its success though, but a template of how to do it does exist.

One last noteworthy thing is the dual listing. The Warsaw Stock Exchange (WSE) is 15 times bigger than ZSE by market cap while more than half of its market cap comes from foreign equities. As such, dual listing is a common practice for WSE investors. As many of the institutional investors who are expected to support Studenac IPO are Polish and American investors, the desire for a larger and more liquid market, i.e. a dual listing was desirable. This also means that the Polish Central Securities Depository is the primary depository. Furthermore, retail investors are offered Studenac shares at the maximum price of the offering, EUR 3.32, which is 5.7% higher than the lower range of the IPO price. Other specifics of the dual listing for retail is that they cannot keep these shares on their free-of-charge SKDD account in which they have, for example, shares of other Croatian companies such as HT or Atlantic Grupa. Arbitrage opportunities would also arise, but to what extent will only be known after the listing. Overall, this IPO could be seen as a positive development for the Croatian capital markets, and more initiatives like these would help to develop the whole market even further, attracting new investors.