IPO Report: Cnova N.V. (CNV)

Cnova N.V. (CNV) is one of the largest global eCommerce companies, with operations in Europe, Latin America, Asia and Africa. It is based in Eindhoven, Netherlands.

Seven other companies are scheduled for the week of Nov. 17, 2014.  The full IPO calendar is available at IPOpremium.

Manager, Joint-managers: Morgan Stanley, J.P. Morgan, BofA Merrill Lynch, Credit Suisse, Deutsche Bank Securities
Co-managers: BNP Paribas, HSBC, Natixis, Societe Generale

End of lockup (180 days): Tuesday, May 19, 2015
End of 40-day quiet period: Tuesday, December 30, 2014

CNV scheduled a $355 million IPO with a market capitalization of $5.8 billion at a price range midpoint of $13.25 for Thursday, Nov. 20, 2014 on Nasdaq.  SEC Documents

Overview
CNV is one of the largest global eCommerce companies, with operations in Europe, Latin America, Asia and Africa.

Summary
Neutral

Per share dilution about the same as IPO mid-point

Adjusted  operating profit a miniscule .04%

Financial expense is 2.09% of sales

Net loss is -2.3% of sales

Not clear how CNV ever makes money

-81 P/E, price-to-tangible book of 95, 1.5 price to sales

Assumes exchange rate end of Sept '14

Business
CNV is one of the largest global eCommerce companies, with operations in Europe, Latin America, Asia and Africa.

Among non-travel pure player eCommerce companies, CNV is the sixth largest by sales and the eighth largest by unique monthly visitors. CNV’s current geographies represent over 530.0 million people, with €0.8 trillion ($1.0 trillion) in total non-food retail spend for the year ended December 31, 2013.

Financial summary 'on a constant exchange rate basis'

HOWEVER, for our calculations we assuming an exchange rate 1.26 euro$  to one US$, the rate for the end of September '14, which is down from a  high of 1.39 euro$ earlier in the year.

CNV's  summary
For the same period, CNV had GMV of €3,563.6 million ($4,500.1 million), representing a 21.4% increase over pro forma GMV for the year ended December 31, 2012 on a constant exchange rate basis.

For the six months ended June 30, 2014, CNV’s GMV was €1,943.5 million ($2,454.3 million), representing a 32.9% increase over CNV’s GMV for the same period in 2013, on a constant exchange rate basis.

For the three months ended September 30, 2014, CNV’s GMV was €1,100.8 million ($1,390.1 million), of which €560.9 million was for its Cdiscount segment, and €539.8 million was for its Cnova Brazil segment, representing a 29.6% increase over CNV’s GMV for the same period in 2013, on a constant exchange rate basis.

CNV’s adjusted GMV for the three months ended September 30, 2014 (adjusted to include all of its international operations as if they were fully consolidated as of the beginning of the period, which CNV refers to as adjusted GMV), was €1,102.8 million, representing a 29.8% increase over the same period in 2013, on a constant exchange rate basis.

Over the seven quarters ended September 30, 2014, CNV’s GMV has shown year-over-year growth of 12.6%, 22.3%, 25.9%, 24.9%, 32.2%, 34.6% and 29.6%, on a constant exchange rate basis.

Over the five quarters ended September 30, 2014, CNV’s GMV has shown year-over-year growth of 16.3%, 16.7%, 21.6%, 26.0% and 29.9%, on an historical exchange rate basis.

CNV believes it provides its customers with the best value proposition through a low-cost business model that allows it to offer attractive pricing, an extensive product assortment and highly differentiated delivery and payment solutions.

CNV achieves this through its scalable and proprietary technology platforms and preferred relationships with its Parent Companies, which are among the largest retailers in the markets in which CNV operates.

As of September 30, 2014, CNV offered its over 12.9 million active customers access to a wide and growing assortment of approximately 12.0 million product offerings through a combination of its direct sales and sales by third-party vendors.

CNV’s 7.8 million placed orders in the three months ended September 30, 2014, represented a year-over-year increase of placed orders by 39.0%, while its active customers increased by 27.6% over the same period. CNV’s most significant product offerings categories in terms of GMV are home appliances, consumer electronics, computers and home furnishings.

CNV’s branded sites, including Cdiscount, Extra, Casas Bahia and Ponto Frio, are among the most well-recognized in the markets in which CNV operates.

Intellectual property
CNV’s intellectual property includes the content of its sites, its registered domain names and its registered and unregistered trademarks. CNV believes that the Cdiscount, Extra, Casas Bahia, Ponto Frio and other domain names CNV uses in its business, as well as its Bartira, Finlandek, Continental Edison and Oceanic private labels, are valuable assets and essential to the identity of its business. CNV further believes that its technology infrastructure is an important asset of its business.

CNV relies on a combination of trademark, copyright and trade secret laws in France, Brazil and the other markets in which CNV operates, as well as contractual provisions, to protect its proprietary technology, domain names and brands. CNV has registered approximately 2,000 domain names.

Competition
CNV competes with both eCommerce businesses, including direct sales eCommerce platforms and marketplaces, and traditional retailers, including with their storefronts and eCommerce platforms.

CNV’s competitors vary per country and product category.

 In France, CNV’s main competitors include Amazon, FNAC, LDLC and RDC, in particular with respect to small consumer electronics, such as mobile phones, cameras and computers and, in the case of Amazon and FNAC, also with respect to leisure products, such as books, music and DVDs.

CNV also competes in France with MDG, with respect to home appliances, Darty and Boulanger, with respect to home appliances and consumer electronics, and La Redoute and Conforama, in the home furnishings products category.

In Brazil, CNV’s main competitors are B2W, Walmart, Magazine Luiza, Fastshop and Ricardo Eletro, on the full range of CNV’s products.

Amazon entered the market in Brazil in 2013. While they currently only sell digital content and books, they intend to expand into the leisure product category, and may expand into additional product categories in the future.

5% shareholders pre-IPO
Jean-Charles Naouri       100.0%

Casino, Guichard- Perrachon S.A.          100.0%

Dutch HoldCo   53.5%

Companhia Brasileira de Distribuição     53.5%

Via Varejo S.A.             53.5%

Dividends
No dividends are planned.

Use of proceeds
CNV expects to receive $306 million from its IPO and use it for the following:

for general corporate purposes focused on growing its business and supporting the development and growth of Cnova.

The proceeds will help to accelerate CNV’s strategy, in particular enhancement of its direct sales business and marketplaces globally, continued innovation in fulfillment infrastructure, expansion of CNV’s international footprint with planned businesses in new geographies and launch of new specialty websites to help it capture a wider demographic.

CNV may also use a portion of the net proceeds to reduce leverage from self-financing receivables generated by payment-in-installment programs in Brazil and to fund investments in and acquisitions of complementary businesses, assets and technologies that may arise.