BrightHouse ticks all the right boxes as a potential IPO, with investors likely to say: never mind the APR’s, feel the profits.
The rent-to-own business is not exactly glamorous, but could BrightHouse be a popular IPO with the City?
It has been reported this week that the private equity fund Vision Capital, which has owned the rent-to-own electricals retailer BrightHouse since 2007, has appointed mighty Rothschilds to look at sale options for the business, including a possible stockmarket flotation.
Of course, an IPO is easier said than done, with the market still suffering from quite severe indigestion after the recent plethora of flotations in the retail sector.
And BrightHouse has some controversial aspects to it, being a lender to low-income customers who can’t get access to loans from banks and charging rather high APR’s, even if it doesn’t get as bad a press as the pay day loan companies and Wonga.
But plenty of other recent retailing IPO’s have been “controversial”, including AO.com and Game Digital, without necessarily putting investors off.
And the more successful IPO’s in the sector have been positioned in the discount/value end of the retail market, eg Conviviality Retail, Bonmarche, Poundland and Shoe Zone, showing that investors who may live in “posh” parts of London and the South-East are perfectly capable of distinguishing what makes a good growth or income story.
BrightHouse, in fact, has a lot of things going for it, including a strong management team and a highly profitable business model.
The CEO Leo McKee is a veteran of the Kingfisher group (he was once MD of the Woolworths chain) and knows his way around the City and he has been in charge for nearly 9 years.
And in the year to March 2014 BrightHouse generated EBITDA of nearly £53m (10% up), representing a margin of nearly 16% on sales, which is pretty good going. And BrightHouse have a consistent record of achieving double-digit operating margins and strong LFL sales growth since Leo McKee took over.
BrightHouse getting it right
BrightHouse must be doing a lot right therefore, including a focus on strong customer service, and Leo McKee himself sums it up, rather eloquently, as follows: “Empowering our colleagues to serve our customers has produced another strong year for BrightHouse. Even in these turbulent times, some exceptional retailers continue to prosper. Differentiating characteristics for such businesses tend to include highly focused and integrated teams, rigorous cost and cash flow control, and unequivocal prioritisation of customer service.”
Since Leo Mckee took over at BrightHouse store numbers have broadly doubled to 286 and there still seems to be good potential to grow the store portfolio, so it would be hard to argue that private equity have squeezed the pips dry with BrightHouse.
And although some retailers have been unsure whether to pitch themselves as growth stocks or as mature cash generative companies, BrightHouse should be able to provide both the profits growth and the cash flow to pay a decent dividend, which is a big appeal to many investors in the sector.
So, although it remains to be seen whether BrightHouse will attempt an IPO or how it will be valued, at this stage it seems to tick a lot of the right boxes, with investors likely to say: never mind the APR’s, feel the profits.
- Nick Bubb has been a leading retailing analyst for over 30 years. He is a well-known commentator on UK retailing and is a founder member of the influential KPMG/Ipsos “Retail Think-Tank”.