Researchers endorse Trade Me IPO

Equity researchers Woodward Research have endorsed Trade Me as ‘a mature company with strong cash flows and impressive profitability’ in advance of its partial sale by owners Fairfax Media.

Nick Lewis, senior analyst and partner at Woodward Research, says although the company’s growth has slowed since the heady days the mid-2000s, it still has plenty to offer investors.

"The company is reaching its mature growth phase,” Lewis says.

"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.

"Having said that, we believe that Trade Me will still have the strongest cash flow margins of any company listed on the NZX. As such, most of the returns to investors will be in the form of dividend rather than capital appreciation.”

Woodward has valued Trade Me at $2.54 per share with a 12-month target price of $2.80 per share. Trading begins on December 13 on the NZX at $2.70 per share (and on the ASX at the equivalent value in AU$).

Fairfax bought Trade Me from entrepreneur Sam Morgan in 2006, for $700 million. The company plans to raise $363.5 million by selling a 34% stake in the site.

Go here to download a copy of Woodward’s full report.