IPO Update: Kenvue Seeks $3.25 Billion IPO (Pending:KVUE)

A Quick Take On Kenvue

Kenvue (KVUE) has filed proposed phrases to boost $3.25 billion in gross proceeds from the sale of its frequent stock in an IPO, in keeping with an amended registration assertion.

The agency designs and sells a variety of client healthcare merchandise worldwide.

For traders in search of a safety-oriented client staple stock with a fairly sturdy dividend as inflation drops, my outlook on KVUE is a Buy at $21.50 per share.

Kenvue Overview

Skillman, New Jersey-based Kenvue was based as a division inside Johnson & Johnson to create and promote healthcare merchandise globally to reinforce client wellness.

Management is headed by CEO-to-be Thibaut Mongon, who has been with the agency since 2000 when he joined guardian agency Johnson & Johnson as Director of Marketing for the Vision Care Group in France.

The firm’s major choices embrace:

• Band-Aid

• Motrin

• Tylenol

• Listerine

• Aveeno

• Neutrogena

• Johnson’s

• Lubriderm

• Zyrtec

• Nicorette

• Others

As of January 1, 2023, Kenvue has booked truthful market worth funding of $25.5 billion from guardian agency Johnson & Johnson.

Kenvue – Customer Acquisition

The firm distributed its merchandise through an omnichannel strategy by retail distribution and on-line e-commerce websites.

Kenvue operates in three segments, with the next web gross sales share contributed in 2021:

• Self Care – 38%

• Skin Health and Beauty – 30%

• Essential Health – 32%

Selling, G&A bills as a share of complete income have risen barely as revenues have elevated, because the figures under point out:

Click to enlarge

(Source – SEC)

The Selling, G&A effectivity a number of, outlined as what number of {dollars} of further new income are generated by every greenback of Selling, G&A spend, was 0x in the newest reporting interval. (Source – SEC)

Kenvue’s Market & Competition

According to a 2022 market research report by ResearchAndMarkets, the worldwide market for client healthcare merchandise was an estimated $340 billion in 2021 and is forecast to succeed in $520 billion by 2027.

This represents a forecast CAGR of seven.34% from 2023 to 2027, though administration estimates development to be between 3% – 4% into the longer term.

The predominant drivers for this anticipated development are demand from shoppers for handy merchandise with a decrease environmental impression and continued improvement of recent product classes by producers.

Also, the anticipated speedy development of e-commerce and on-line pharmacy channels is anticipated to increase demand for client healthcare merchandise in developed in addition to rising economies worldwide.

Major aggressive or different business members embrace:

• Bayer

• Haleon

• Procter & Gamble

• Reckitt Benckiser Group

• Sanofi

• Beiersdorf

• L’Oreal

• Unilever

• Colgate-Palmolive

• Kimberly Clark

• Private label manufacturers

Kenvue’s Financial Performance

The firm’s latest monetary outcomes could be summarized as follows:

• Slightly contracting topline income

• Reduced gross revenue and gross margin

• Lowered working revenue and working margin

• Sharply increased money stream from operations

Below are related monetary outcomes derived from the agency’s registration assertion:

Click to enlarge

(Source – SEC)

As of January 1, 2023, Kenvue had $1.2 billion in money and $7.3 billion in complete liabilities.

Free money stream through the twelve months ended January 1, 2023 was $2.1 billion.

Kenvue’s IPO Details

Kenvue intends to promote 151.2 million shares of frequent stock at a proposed midpoint worth of $21.50 per share for gross proceeds of roughly $3.25 billion, not together with the sale of customary underwriter choices.

No current or doubtlessly new shareholders have indicated an curiosity in buying shares on the IPO worth.

The firm is starting its separation course of from guardian agency Johnson & Johnson and J&J will personal roughly 91% of the voting energy, so KVUE will likely be managed by J&J instantly after the IPO.

Assuming a profitable IPO on the midpoint of the proposed worth vary, the corporate’s enterprise worth at IPO (excluding underwriter choices) would approximate $47.9 billion.

The float to excellent shares ratio (excluding underwriter choices) will likely be roughly 8.1%. A determine beneath 10% is usually thought of a ‘low float’ stock which could be topic to important worth volatility, though the excessive variety of shares concerned on this specific IPO will mitigate this concern.

Per the agency’s most up-to-date regulatory submitting, it plans to make use of the web proceeds as follows:

We pays Johnson & Johnson, as partial consideration for the Consumer Health Business that Johnson & Johnson is transferring to us in reference to the Separation, all of our money and money equivalents, together with (1) all the web proceeds that we are going to obtain from the sale of shares of our frequent stock on this providing, together with any web proceeds that we are going to obtain on account of any train of the underwriters’ choice to buy further shares of our frequent stock from us to cowl over-allotments, and (2) all the web proceeds that we are going to obtain from the Debt Financing Transactions, along with any curiosity accrued thereon following our receipt of such proceeds; supplied that we count on to retain $1.17 billion in money and money equivalents, after giving impact to this providing, the Debt Financing Transactions and the settlement or termination of sure intercompany accounts payable or accounts receivable between us and Johnson & Johnson, which we presently intend to make use of for normal company functions.

(Source – SEC)

Management’s presentation of the corporate roadshow is available here till the IPO is accomplished.

Regarding excellent authorized proceedings, administration mentioned that guardian agency Johnson & Johnson ‘will comply with indemnify us for the Talc-Related Liabilities and any prices related to resolving such claims. Such claims characterize the overwhelming majority of claims referring to hurt arising out of, primarily based upon or ensuing from, instantly or not directly, the presence of or publicity to talc or talc-containing merchandise. We will, nevertheless, stay answerable for all liabilities on account of or referring to hurt arising out of, primarily based upon or ensuing from, instantly or not directly, the presence of or publicity to talc or talc-containing merchandise bought outdoors the United States or Canada.’

Listed underwriters of the IPO are Goldman Sachs, J.P. Morgan, BofA Securities and quite a few different funding banks.

Valuation Metrics For Kenvue

Below is a desk of the agency’s related capitalization and valuation metrics at IPO, excluding the results of underwriter choices:

Click to enlarge

(Source – SEC)

As a reference, a possible public comparable can be The Procter & Gamble Company (PG); proven under is a comparability of their major valuation metrics:

Click to enlarge

(Source – SEC and Seeking Alpha)

Commentary About Kenvue

KVUE is in search of to go public because it separates from Johnson & Johnson.

The firm’s financials have produced excessive and variable topline income, fluctuating gross revenue and gross margin, variable working revenue and constructive money stream from operations.

Free money stream for the twelve months ended January 1, 2023 was $2.1 billion.

Selling, G&A bills as a share of complete income have risen barely as income has diverse; its Selling, G&A effectivity a number of was 0x in the newest reporting interval.

The agency presently plans to pay an undetermined dividend relying on plenty of elements as determined upon by the corporate’s board of administrators.

KVUE’s trailing twelve-month CapEx Ratio was 6.42, which signifies it has spent comparatively frivolously on capital expenditures as a share of its working money stream.

The market alternative for promoting mainline client healthcare merchandise is kind of massive and anticipated to develop at a reasonable fee of development within the coming years.

Goldman Sachs is the lead underwriter, and IPOs led by the agency over the past 12-month interval have generated a mean return of 61.3% since their IPO. This is a top-tier efficiency for all important underwriters through the interval.

JNJ’s indemnification is barely nearly as good as its monetary viability and multi-billion greenback awards to this point have been regarding.

As for valuation expectations, administration is asking IPO traders to pay an Enterprise Value / EBITDA a number of just like that of competitor Procter & Gamble, despite the fact that KVUE has produced a income contraction and is producing considerably decrease web margin.

The firm expects to pay a quarterly dividend with an annual dividend yield of roughly 3.7%, which is materially increased than competitor Procter & Gamble’s present ahead dividend yield of two.41%.

While Kenvue has some uncertainty surrounding guardian agency J&J’s talc-related liabilities and its latest slight development contraction is a destructive, the corporate’s line of world-class client merchandise signifies that it represents a possible secure harbor in a macroeconomic slowdown.

For traders in search of a safety-oriented client staple stock with a fairly sturdy dividend as inflation drops, my outlook on KVUE is a Buy at $21.50 per share.

Expected IPO Pricing Date: May 4, 2023.