December 15, 2010, 7:45 am

FLT - FLeetCor

disclosure - at time of posting, is long FLT

FLT - FleetCor Technologies

FLT - FleetCor Technologies plans on offering 16.6 million shares at a range of $23-$26. **Insiders will be selling all the shares in the deal except for 431,000 shares. JP Morgan and Goldman Sachs are leading the deal, Barclays, Morgan Stanley, PNC, Raymond James and Wells Fargo co-managing. Post-ipo FLT will have 78.7 million shares outstanding for a market cap of $1.928 on a pricing of $24.50. FLT will receive just $6.3 million from this ipo and plans on use a chunk of that to repay debt.

Summit Partners will own 30% of FLT post-ipo. Summit is selling 5.1 million shares in the deal.

Bain Capital will own 15%. Bain is selling 2.5 million shares on ipo.

From the prospectus:

'FleetCor is a leading independent global provider of specialized payment products and services to commercial fleets, major oil companies and petroleum marketers.'

Fuel and lodging cards for enterprise fleets. Partners with major oil companies and offers fleet payment programs/cards to enterprises worldwide.

530,000 commercial accounts in 18 countries in North America, Europe, Africa and Asia. Approximately 2.5 million commercial cards in use during 12/09. Those cards are charge cards typically paid in full monthly by the enterprise customer. Cards accepted at 83,000 locations worldwide.

In '09 $14 billion in purchases on FLT's network and third party networks. FLT operates six 'closed loop' networks in addition to utilizing third party networks. FLT's closed loop networks e-connects to merchants.

FLT's payment programs enable businesses to manage and control employee spending.

Primary customers are vehicle and government fleets focusing on small and medium commercial fleets. In addition, FLT manages commercial fleet card programs for BP, Chevron, Citgo and 800 petroleum marketers. FLT in this way has revenue sources from fleet users as well as fleet fuel providers from whom they make money on the spread between fuel bought/sold.

Draw here is the recurring revenue stream from both ends. FLT generates fees every time a card is used as well as the fuel spreads.

Growth - FLT has grown predominantly via acquisitions over the past decade. Sine 2002, FLT has made 40 acquisitions of smaller companies. This has brought upon debt, as roll-up strategies often do.

Sector - As we've seen with other payment ipos this year/decade, the use of electronic payments is fast growing with favorable future trends. Card purchase volumes grew at an annual rate of 10%+ the past 5 years reaching $6.8 trillion annually in 2009.

Fleet Vehicles - Approximately 42 million fleet vehicles in the US(with another 68 million fleet vehicles worldwide) with fleet purchase volumes of $50.8 billion. 35% of fleet vehicle fuel volume in 2009 was via specialized fleet cards.

36% of revenues are non US dollar denominated, primarily British Pound and Czech Koruna.

2/3rd's of revenue derived from North America.


Substantial debt here of $498 million post-ipo. FLT will also have $110 million in unrestricted cash on the balance sheet post-ipo. Expect that cash to be put to work acquiring smaller fleet payment operations. Debt here is not a dealbreaker however as through the first 9 months of 2010 debt servicing only ate up 11% of operating profits. Anything solidly under 20% and the debt is not a dealbreaker for me in range. A very strong ipo MJN had similar debt metrics as FLT pre-ipo.

FLT's revenues fluctuate with the price of fuel. FLT believe the absolute price of fuel was responsible for 19% of 2009 revenues. In addition 18% of revenues are derived from the spreads in fuel, the difference between the amount FLT pays for fuel from partner petroleum companies and the amount FLT charges enterprise customers. Lodging accounts for 10% of revenues.

***Note that FLT does something quite interesting. They securitize and sell-off a portion of their accounts receivables in order to finance charges(future receivables). As FLT is not just the processing company, but also often the company fronting the charges, securitizing future cash flows helps them keep sufficient cash on hand to pay enterprise customer monthly charges. The end result is they remain liquid enough to act as the 'bank', however doing so they give up some of their net receivables. The margins appear stronger with this model as we will see below.

Bad debt expense was $32 million in 2009 and $15 million through the first 9 months of 2010.

54% of revenues are derived from fees and charges associated with transactions. So two main revenue streams here often overlapping: 1) fees for charge transactions; and 2)The spread on the difference between FLT's fuel cost and the price charged the enterprise customer.

2010 - Revenues of $442 million, a 19% increase over 2009. Note that this increase does take into effect FLT's sizable 2009 acquisition as if that occurred 1/1/09. 2009 revenues were rather flat due to the global economic slowdown. ***Operating margins here are very strong at 45%. As noted above interest expense drains 11% from operating margins. Plugging in net securitization expenses and full taxes, net margins of 27 1/2%. EPS of $1.54. On a pricing of $24 1/2, FLT would trade 16 X's 2010 earnings.

2011 - FLT will use that $110 million in cash on the balance sheet to acquire. I do not believe FLT will increase revenues organically by anywhere close to 2010's 19%. Comparables with 2009 were just too easy. Plug in 5% organic growth and 5% from acquisitions while slightly increasing margins gives us an EPS of $1.70-$1.75. On a pricing of $24 1/2, FLT will trade 14 X's 2011 earnings.

Conclusion - A very interesting ipo here. FLT not only operates fleet card programs, they process the payments, front a substantial portion of the charges(act as the 'bank'), partner with oil companies to make money on fuel spreads and are now into fleet lodging programs. They've been A very aggressive successful operation, FLT has been net profitable since at least 2005. With the successes of e-payment related ipos such as GDOT/ONE/NTSP, this deal should work quite well short term and mid-term. Keep an eye on the debt levels, do not want to see FLT leverage themselves too heavily while growing and acquiring smaller operations. Pretty interesting, unique and exciting deal here. Recommend in range.

December 9, 2010, 4:32 pm

BONA - Bona Film Group

BONA - Bona Film Group

BONA - Bona Film Group plans on offering 13.5 ADS(assuming overs) at a range of $7-$9. BofA Merrill Lynch and JP Morgan are leading the deal, CICC, Piper Jaffray and Cowen co-managing. Post-ipo BONA will have 59.2 million ADS equivalent shares outstanding for a market cap of $474 million on a pricing of $8. Ipo proceeds will be used to acquire theaters, film distribution rights and general corporate purposes.

Chairman of the Board and CEO Dong Yu will own 35% of BONA post-ipo. Sequioa Capital will own 10%.

From the prospectus:

'We are the largest privately owned film distributor in China.'

Since the beginning of 2007, BONA's distributed films have had a whopping 42% of the box office for the 20 highest grossing domestic Chinese films. This number is a tad misleading, as BONA's distributed films had a 17% total market share.

BONA's revenues rely annually on a few movies. BONA's top five films in 2007-2009 accounted for 60% of their revenues.

Since 11/03, BONA has distributed 139 films, including 29 which have been released internationally. 16-20 films a year is the norm.

**In addition to distributing films, BONA also invests in film production and owns 6 movie theaters. Note that BONA purchased the theaters from their own CEO for shares equaling $93 million on a pricing of $9.

BONA also runs a talent agency.

China film industry - 32% average annual growth from 2005 to 2009. $926 million in total 2009 box office with average ticket prices of $4.60. 200 million admissions in 2009 with an estimated 258 million admissions in 2010. 1,687 urban movie theaters.

State owned film distributors account for approximately 50% of film revenues in China. Note that state owned distributors own the exclusive right to show foreign movies, mainly US hits movies.

Production - BONA has stepped up their production of films which kicked off in 2007. Film production can be much riskier than straight distribution as it requires a larger up front cash outlay with no guarantee of a return. In 2008, BONA spent $4 million in film production costs, $19.5 million in 2008 and through the first 9 months of 2010, $47.5 million. In comparison, BONA has spent just $1.2 million in distribution rights in the first nine months of 2010. ***Looking at expenses it is obvious that BONA is shifting their business model from purchasing/distributing films to producing and distributing their own self-produced films.

Obvious risk here is for BONA to spend heavily on producing a few films that end up flopping. Very similar risks to US film production studios.


$1.00 per ADS in net cash post-ipo. BONA does keep short term debt on the books to assist in production and distribution financing.

Taxes - BONA should continue to benefit from a low tax rate through 2013. Distribution revenues earned by film distributors are exempted from business tax until 12/31/13. BONA derives the bulk of their revenues from distribution.

BONA has been GAAP operationally profitable since at least 2007.

Cash flows - As BONA has gone deeper into film production, their cash flows have not surprisingly gone more negative. Film production eats up cash on the front end, with revenues coming on the back end then often used to fund future productions etc...This makes for a very risky business model as all it takes is a year or two of disappointing returns to dry up cash coming in. BONA has increased their borrowing in 2009 and 2010 to cover film production costs. The ipo proceeds should slow their need to borrow. Do not expect positive annual operating cash flows here going forward. just the way film production tends to work.

2010 - GAAP revenues should be $65 million a 71% increase from 2009. Gross margins of 50%. Operating margins of 21%. Negligible taxes, net margins of 20%. EPS of $0.22. On a pricing of $8, BONA would trade 36 X's 2010 earnings. Again keep in mind that BONA is able to amortize production expenses, which allows for positive GAAP earnings with negative cash flows.

2011 - Really with this type of business model, forecasting is just a guess. 80%+ of revenues are derived from film distribution, nearly all of which for 2011 have not been released as of yet.

Conclusion - First Chinese film company to list in the US. Valuation looks a little dear here due to the nearly 60 million shares outstanding. At 1/2 the market cap, this would be quite attractive, a $474 million market cap for a negative cash flow film operating generating $65 million in revenues seems pricey.

A number of these recent China ipos seems to have quite a few shares outstanding. So while the actual pricing number appears reasonable there are so many shares in the market cap that any upside valued them quite dearly. We continue to see deal after deal across many sectors attempt(and succeed) to price at a very high price to revenues multiple. BONA is another of these. Not a bad looking ipo as 17% of the entire Chinese film distribution segment is impressive. However aluation on any appreciation above range will look awfully aggressive for this high risk sector.

December 9, 2010, 8:31 am

DANG - E-Commerce China Dangdang

**Note - DANG priced $16 yesterday and is currently trading $30+, making this piece already a part of ancient history. does an analysis piece on every US ipo for subscribers prior to pricing/open...These pieces are available in the subscribers section.

DANG - E-Commerce China Dangdang

DANG - E-Commerce China Dangdang plans on offering 19.55 million ADS at a range of $11-$13. Insiders will be selling 5.8 million ADS in the deal. Credit Suisse and Morgan Stanley are leading the deal, Oppenheimer, Piper Jaffray and Cowen are co-managing. Post-ipo DANG will have 78.2 ADS equivalent shares outstanding for a market cap of $939 million on a pricing of $12. Ipo proceeds will be used to advance and enhance operations.

The two co-founders will own a combined total of 1/3 of DANG post-ipo. They will retain voting power due to a separate share class.

From the prospectus:

'We are a leading business-to-consumer, or B2C, e-commerce company in China.'

DANG is being called the of China. Website is Been in business online for a decade.

Online bookseller now branching out into other consumer categories. DANG is the largest bookseller in China. 590,000 titles with more than 570,000 Chinese language titles. DANG believes they have more Chinese language titles available than any other seller in the world.

New products being offered include beauty and personal care products, home and lifestyle products, and baby, children and maternity products. Much like, DANG now offers third party products on their website.

6 million active customers in 2009 with 1.24 million daily unique visitors in 2010. That last number is pretty impressive. Already through first nine months of 2010, DANG has seen 6.8 million active customers ordering 20.8 million products.

78% of revenues generated from repeat customers.

Delivery to over 750 cities in China. DANG offers cash on delivery service as well as online payments. Cash on delivery is a popular payment method in China.

Sector - Chinese retail sales of $929 billion in 2009 with the book market generating $4.6 billion in revenues. Online commerce accounted for $39 billion in 2009 revenues. 46% of China's internet users bought book and/or other media products online in 2008. B2C e-commerce sales accounted for just 0.2% of overall Chinese retail sales in 2009.

***Revenue growth has been staggeringly good. Revenues grew 67% in 2008, nearly 100% in 2009 and are on pace for 50% in 2010. Gross margins are slowly improving, still fairly low though in the 22%-23% range. Operating expenses are growing slower than revenues meaning DANG has been inching towards profitability. The financials have not quite caught up with the strong top-line growth yet. However we've the '' of China booking third straight top-line revenue growth of 50%+ in 2010. That combination makes the deal a recommend in range. Period.

Primary online competition is and Taobao Mall. An interesting potential competitor could come in the way of electronic books. With their entrenched platform one would assume that DANG would be on the forefront in China in e-book sales.


$2.25 per ADS net cash post-ipo.

Cash flows in 2010 have been impressive, much better than EPS. Through the first nine months of 2010, operational cash flows have been $0.33. 2009 was DANG's first year of GAAP and cash flow profitability.

84% of 2010 revenues from book sales.

Seasonality - 4th quarter strongest, 1'st quarter weakest.

Taxes for 2010 will be negligible. Same should hold for 2011 as DANG works off previous losses.

2010 - Revenues should be $335 million with the 4th quarter being the strongest on top and bottom lines. Gross margins of 23.2%, an increase over 2009's 22.4%. Operating margins of 2%, net margins 2%. EPS of $0.09.

Note again however that operating cash flows will be much stronger than GAAP EPS for 2010. Depending on strength of 4th quarter, operational cash flows could be in the $0.45-$0.50 ballpark for 2010.

Conclusion - Disregard the EPS here for now, this deal will work in range short and mid-term. Dominant market leader growing revenues strongly while improving gross margins and operational metrics. Cash flows are improving nicely year over year, EPS should follow in the not too distant future. Strong deal.

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