The $1.3b IPO of Redox hit the boards this week, the biggest new entrant to the ASX in nearly 2 years. Redox is Australia’s largest chemicals and raw materials distributor, with well-established operations in NZ and a growing base in the US and Malaysia. They have over 6000 active customers with over 900 suppliers for various products, coming off a significant IT upgrade that has streamlined the business and proven to make customers more sticky. They raised ~$400m with around 40% of that coming from a selldown from existing shareholders, 50% used to pay down debt and the remainder going towards listing/raising fees and working capital. The business didn’t really need the capital, so it begs the question of why list now. In part, it provides liquidity for long-term shareholders, which include the CEO, Raimond Coneliano, whose grandfather started the business in 1965. We also suspect it provides liquidity for the business to go after acquisitions, a well-trodden path for the company which has created a lot of value in rolling up smaller competitors to add both suppliers and customers to its funnel.
The beauty of the business is that it has no major reliance on one customer, supplier or product. They make solid EBITDA margins of ~10-12%, expecting to grow revenue by 15% when they report FY23 earnings in a few weeks’ time and have a number of avenues to grow including international expansion and M&A. Shares have fallen 9% from the $2.55/sh IPO price which will likely weigh on the performance of shares until a catalyst comes to light.
- While we did not participate in the IPO, we do like Redox as a company, and will be interested in their first earnings results as a listed company.
