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IPO May Value Fast-Growing Post Unit at $3 Billion

27 November 2018


November 27, 2018 (David Nicklaus)

While larger companies struggle to find any growth in the packaged food business, Post Holdings has the opposite problem: It can’t keep up with demand for one fast-growing product.

In fact, Post has temporarily discontinued five flavors of its Premier protein shakes, making just vanilla and chocolate while it adds production capacity. Chief Executive Robert Vitale admitted in a recent conference call that strong shake sales had “depleted our inventory and created challenges in maintaining our high service levels.”

It’s a good sort of problem to have, certainly better than the doldrums faced by growth-challenged rivals such as Kraft Heinz and Campbell Soup. However, Post feels that its active nutrition line, which includes such brands as PowerBar and Joint Juice in addition to the protein shakes, isn’t getting the investor recognition it deserves.

To remedy that, Brentwood-based Post plans an initial public offering of shares in the fast-growing unit. Analysts figure that the IPO will be valued at 15 to 20 times earnings before interest, taxes and depreciation.

That would make the active nutrition business worth about $3 billion, estimates Scott Harrison, a portfolio manager at Argent Capital Management in Clayton.

Post itself trades at just 10 times operating profit, so the IPO will create at least $1 billion in immediate value, and Post plans to keep an 80 percent stake in the new company.

It’s easy to see why investors might assign a higher valuation to the active nutrition business. Its revenue has grown 30 percent annually since 2014, the year after Post bought Premier Nutrition for $180 million. Operating profit has grown 58 percent a year.

Those look more like tech-company numbers than food-company ones. With its own shares, the active-nutrition company may find it easier to buy other fast-growing businesses.

“If you are going to be acquiring in that space, you are going to be paying higher multiples,” Harrison explained.

“Why pay high multiples for assets if you bring them into a market that is only going to assign you a low multiple?”

On the conference call, Vitale mentioned acquisitions as a reason for doing the IPO. “We expect to capitalize it in a manner that enables it to serve as an acquisition vehicle,” he said.

Post itself has been a frequent buyer of other food companies, and Vitale says the pipeline of potential acquisition candidates “is becoming richer.”

Harrison is a fan of the way Post pounces on acquisitions and makes them pay. Its share price has more than tripled since early 2012, far outpacing its food industry peers.

“In any sector they would stand out with what they’ve been able to do,” he said. “It’s even more impressive against the backdrop of the challenging food industry.”

For now, the value-creation play isn’t to buy another company but to monetize one it already owns. Post has said the active nutrition business would be based in the St. Louis area after the IPO; it would be the first area company to go public since Peak Resorts in 2014.

That is, of course, assuming that the IPO goes through. Post filed IPO documents for its private-label business this spring, then sold a stake in the unit to a private-equity firm instead of taking it public. Analysts say it could do something similar with the active nutrition business — or even sell it outright.

Whatever happens, Harrison figures it will benefit shareholders. “This is another example of why we view Post’s management team as the best in consumer staples,” he says.