August 20, 2010, 12:12 pm

GMAN - Gordmans Stores

Note - GMAN ended up pricing below range at $11. At date of this post 8/20, is long GMAN.

GMAN - Gordmans Stores

GMAN - Gordmans Stores plans on offering 6.2 million shares(assuming over-allotments are exercised) at a range of $13-$15. Insiders will be selling 3 million shares in the deal. Piper Jaffray and Wells Fargo are leading the deal, Baird and Stifel co-managing. Post-ipo GMAN will have 18.7 million shares outstanding for a market cap of $262 million on a pricing of $14. Ipo proceeds will be used for debt repayment and general corporate purposes.

Sun Capital Partners will own 67% of GMAN post-ipo. Sun Capital acquired 100% stake in GMAN in 9/08 for total considerations of just $55.7 million. Of this, $32.5 million was debt on the back of GMAN. That debt will be paid off on ipo.

From the prospectus:

'Gordmans is an everyday low price retailer featuring a large selection of the latest brands, fashions and styles at up to 60% off department and specialty store prices every day in a fun, easy-to-shop environment.'

Discount retailer in the Mid-West. 68 stores in 16 Midwestern states. 50,000 square foot stores. 'Upscale discounter' appears to be how GMAN positions themselves.

10 stores in Missouri, 9 in Iowa and 8 in Illinois.

GMAN defines their target as: 'Our primary target shopper is a 25 to 49-year-old mother with children living at home with household incomes from $50,000 to $100,000.'

Apparel 53% of revenues, Home Fashions 29% and Accessories 18%.

GMAN positions themselves as a blend of specialty, department and off-price retailer. Up to 60% off department store prices with a broad selection of fashion-oriented apparel. Also, GMAN keeps mentioning that their stores offer a shopping experience infused with 'fun and entertainment'.

GMAN has beefed up their Home Decor, Juniors and Young Men's sections in an attempt to offer a broader range of selection in these three area than their competitors.

Growth - GMAN opened 23 stores from 2004-2008, but just one in 2009. One store opening in first quarter of 2010. Plan going forward is to increase store base by approximately 10% annually. That would be roughly 7 new store openings a year.

Same store sales increase of 4.6% in 2009 with 4th quarter '09 totaling 9.3%.

***Strong start to 2010 with same store sales increase of 15.4% in first quarter of fiscal year. As we all know, retail comparables against first half of 2009 are quite easy as that period represented the trough of the recent recession...especially the first 3 months of 2009.

Footwear is sold under a licensing agreement with DSW.

All store locations are leased.


$1 per share in net cash post-ipo.

Fiscal year ends last working day of January annually. FY '10 ends 1/31/11.

FY '09(ending 1/30/10) - Revenues of $457.5 million. 4.6% same store sales growth. Average store sales of $6.9 million. 42.4% gross margins. Operating expense ratio of 36.7%. Operating margins of 5.7%, net margins of 3.8%. Earnings per share of $0.92. Pretty good results considering the shaky consumer spending environment the first half of 2009.

FY '10(ending 1/31/11) - GMAN had a strong first quarter to the fiscal year. In fact, the past two quarters have easily been the strongest operating profit quarters in GMAN history. Impressive here is that GMAN followed up a strong holiday season with a fantastic quarter in what is often a slow one for retailers. The question going forward is whether GMAN can continue this momentum. I've attempted to be conservative and factored in a flat quarter for the 2nd Q of FY '10 and rather conservative growth the back half of the fiscal year.

Total revenues should grow a solid 14% to $520 million. Note that in the first quarter of the fiscal year, GMAN grew revenues year over year by 20%, so again I am factoring in more conservative results rest of fiscal year. Gross margins look as if they will improve to 44%. Operating expense ration should remain similar at 7%. 7% operating margins, 4.6% net margins. Earnings per share of $1.27. On a pricing of $14, GMAN would trade 11 X's FY '10 estimates.

Conclusion - GMAN is being priced in range at similar PE's to discounters such as TGT/ROST/TJX. Those three trade 12-13 X's 2010 estimates. Key differences are 1)GMAN is expected to grow 14% my conservative 2010 estimates, while the other discounters are growing 4%-8%; 2)GMAN only has 68 stores in existence, leaving a lot more room for % store growth than those other discounters.

Solid retailer coming public attractively priced.

August 9, 2010, 7:06 pm

NXPI - NXPI Semiconductors

NXPI - NXPI Semiconductors

NXP - NXPI Semiconductors plans on offering 34 million shares at a range of $18-$21. Credit Suisse, Goldman, Morgan Stanley, BofA Merrill Lynch and Barclays are leading the deal, JP Morgan, KKR, ABN Amro, HSBC and Rabo co-managing. Post-ipo, NXPI will have 249.3 million shares outstanding for a market cap of $4.861 billion on a pricing of $19.50. Ipo proceeds will be used to repay a portion of NXPI's substantial debt.

KKR will own 28% of NXP post-ipo, Bain Capital 24%. Philips Electronics will own 17%. KKR, Bain and others acquired NXP from Philips Electronics in a 2006 leveraged buyout.

***Debt is the issue here. Factoring in debt paid off on ipo, NXP will have $4.5 billion in dept post-ipo. I will never be interested in an ipo coming public with $4.5 billion in debt. It is that simple here. $4.5 billion in debt makes the underlying business irrelevant, I've no interest in this deal at any price.

From the prospectus:

'We are a global semiconductor company and a long-standing supplier in the industry, with over 50 years of innovation and operating history. We provide leading High-Performance Mixed-Signal and Standard Products solutions that leverage our deep application insight and our technology and manufacturing expertise in radio frequency ("RF";), analog, power management, interface, security and digital processing products.'

NXP produces a variety of mixed signal(analog and digital) and 'standard' semiconductors. The standard semis tend to be the more commoditized, lower margin semiconductors. End markets include automotive, identification, wireless infrastructure, lighting, industrial, mobile, consumer and computing applications.

58% of revenues from Asia-Pacific region.

Large operation here. 68% of of Mixed-signal semis and 80% of 'standard' semis are either the number one or two market position in the world. 14,000 worldwide issued and pending patents.

Top customers include Apple, Bosch, Continental Automotive, Delphi, Ericsson, Harman Becker, Huawei, Nokia, Nokia Siemens Networks, Oberthur, Panasonic, Philips, RIM, Samsung, Sony and Visteon.

The semiconductor sector is highly cyclical. The worldwide recession had a severe impact on operations. This led to a 2008 'redesign' of the company including 1)a focus on higher margin Mixed Signal semiconductors; 2) $650 million in annual costs savings; 3) reduced manufacturing facilities from 14 to 6.

Mixed-signal semi revenues now account for approximately 65% of total revenues. Gross margins for these are 52%, compared to approximately 30% for standard semis.


$4.5 billion in debt post-ipo. Debt servicing will cost NXPI $1.50 per share annually.

2009 - Revenues declined significantly 30%. Revenues of $3.8 billion. Gross margins of 25%. Negative operating margins. Plugging in debt servicing and folding out one-time charges, losses were a whopping $4.84 annually. Note that a portion of these losses were non-cash amortization charges related to the 2006 leveraged buyout. Cash flow wise plus debt servicing led to a 'more reasonable' loss of $4.40 per share.

2010 - Revenues and margins improving substantially, while NXPI has attempted to also get costs under control. Total revenues should be $4.8 billion, an increase of 26% from 2009. Gross margins should improve to 31%, due to the increase in mixed-signal semi revenues. Operating margins of 7%. Unfortunately debt servicing will eat up all operating profits and then some. Losses should be around $0.25 per share. Note again amortization charges will be pretty steep. Cash flows with debt servicing factored in give us a better idea of the profit picture. There, NXPI should see a small positive overall cash flow in 2010.

Conclusion - The debt levels make NXPI very susceptible to trouble during cyclical low points in the sector. NXPI was fortunate to survive the 2008 slowdown. Actually if revenues had remained depressed for even another year, NXPI may have not been viable. The debt here is issue. NXPI is a large dominant player in the mixed-signal and standard semi space. Unfortunately the debt levels are far too high here. Not interested at any price

August 1, 2010, 5:16 pm

CHKM - Chesapeake Midstream Partners

CHKM - Chesapeake Midstream Partners

CHKM - Chesapeake Midstream Partners plans on offering 24.4 million units at a range of $19-$21. Lot of underwriters on this one. UBS, Citi, Morgan Stanley, BofA Merrill Lynch, Barclays, Credit Suisse, Goldman Sachs, Wells Fargo are all joint book runners. BBVA and BMO co-managing. Post-ipo CHKM will have 142 total units outstanding for a market cap of $2.84 billion on a pricing of $20. 1/2 of the ipo proceeds will be used to repay borrowings, the remainder for capital expenditures.

Chesepeake Energy(CHK) and Global Infrastructure Partners will each own 42% of CHKM post-ipo. CHK will manage CHKM.

From the prospectus:

'We are a limited partnership formed by Chesapeake and GIP to own, operate, develop and acquire natural gas gathering systems and other midstream energy assets. '

Natural gas gathering pipelines. Gathering pipelines are the first segment of midstream energy infrastructure that connects natural gas produced at the wellhead to third-party takeaway pipelines.

CHKM's pipelines service Chesepeake and Total under long-term 20 year contracts.

Gathering systems are primarily in the Barnett Shale region in north-central Texas. 2,800 miles of pipelines servicing 4,000 natural gas wells. In the three months ending 3/31/10, CHKM's pipelines gathering 1.5 Bcf of natural gas per day, making them on of the largest natural gas gatherers in the US.

Chesapeake Energy(CHK) - One of the largest natural gas producers in the U.S. by volume of natural gas produced. The most active driller of natural gas in the US based on number of active rigs. CHK focuses on unconventional shale drilling. CHK plans on dropping down additional gathering assets to CHKM over time. Strong parent here, which is a key to a successful midstream MLP.

CHKM relies on CHK for virtually all revenues.

Commodity risk here is limited as CHKM collects all revenues via long term fixed fee contracts. CHKM does not take ownership of the natural gas flowing through their pipelines. 20 year fixed fee contracts mean solid cash flow projections here.

Growth - Other than future dropdowns from CHK, CHKM expects volumes to increase in their current operations. In early 2010, CHK and Total formed a joint venture agreement in which Total took on a 25% interest in CHK's Barnett Shale assets. Total is providing $2.25 billion in funding to the assets and CHK plans to significantly increase rig count in the region be end of 2010.

Capex - CHKM plans on using 1/2 the ipo proceeds toward an extensive expansion program. In the 12 months ending 6/30/11, CHKM plans on spending $223.5 million on capital expenditures, primarily pipeline expansion to meet CHK's and Total field needs. **Cash on hand from ipo will fully cover this expansion capex. We've seen a few deals lately in which the MLP borrows money to fund capex and distribute yield. In this case, ipo proceeds will be sufficient to fund CHKM's aggressive expansion plans over the next 12 months.


***Clean balance sheet post-ipo. $1.75 per unit in cash on hand post-ipo. As noted above, this ipo cash will be used for expansion capex over the next 12 months.

Distributions - Quarterly distributions of $0.3375 per unit, 1.35 per unit annually. On a pricing of $20, CHKM would be yielding 6.75% annually.

Historically $350-$400 million in annual revenues.

Forecast for the 12 months ending 6/30/11 - A substantial increase in revenues to $479 million. As noted above, with the partnership with Total, CHK plans on aggressively increasing drilling on their Barnet Shale properties. CHKM is also spending aggressively in pipeline expansion to meet those wells. Strong operating margins of 44%.

***Distribution coverage ratio is expected to be 119%. This includes an additional $70 million in maintenance capex also. Very strong coverage ratio here, CHKM has plenty of cash flows for maintenance capex and yield, good sign.

Quick 'back of the envelope' look at other public MLP gathering pipelines operating in the same general geographic area:

ETP: 7% yield, $6 billion of debt.

XTEX: Over-leveraged, halted distributions while selling off assets. $750 million in current debt, may yield 2.5% over next 12 months best case scenario.

KGS: 7.3% yield, $250 million in debt. KGS looks pretty attractive here actually.

WES: 5.7% yield, $385 million in debt.

RGNC: 6.9% yield, $1 billion in debt.

CHKM on a $20 pricing: 6.75% yield, no debt.

Conclusion - Grade 'A' pipeline ipo here. Strong parent, clean balance sheet. Expect CHKM to utilize the clean balance sheet to acquire dropdown gathering assets from parent CHK which should increase distributions over time. This should work in range short, mid and long term. Recommend strongly.

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