TradeMe has reached a stage of "mature" growth and is likely to have the strongest cashflow margins of any NZX-listed company, according to research specialist Woodward Research.
Woodward today issued a report that valued TradeMe at $2.54 a share with a 12-month target price of $2.80 per share.
Senior analyst and partner Nick Lewis said the TradeMe IPO, which closes on December 6, was a "wonderful development" for New Zealand.
“Trade Me coming to market ... will encourage the retail investor back into the stock market, a good thing for investors and for companies seeking to raise capital, and ultimately good for the country," he said.
"TradeMe is an iconic and trusted brand in New Zealand. The company experienced explosive growth in its early years, and has continued to grow under Fairfax’s ownership.
“Today, however, the company is reaching its mature growth phase, and we can see that in the company’s slowing revenue growth rate and its profitability margins that are beginning to settle down to more long-term levels."
However, Woodward believes TradeMe still has impressive profitability and will have the most robust cashflow among other businesses to be found on the NZX.
"As such, most of the returns to investors will be in the form of dividend rather than capital appreciation.”
TradeMe was founded by entrepreneur Sam Morgan in 1999 and was acquired by in 2006 by Fairfax Media for $700 million, plus an earn-out of up to an additional $50 million
Fairfax plans to raise $363.5 million through the sale of 34 percent of TradeMe; shares are expected to begin trading on the NZSX exchange in New Zealand and on the ASX stock exchange in Australia on December 13 at a price of NZ$2.70 per share (and the equivalent price in Australian dollars at the exchange rate on that day).
Woodward Research provides equity research for companies listed on the NZSX stock exchange.
A copy of the TradeMe report can be downloaded here.