Coffee to go
Coffee grounds and tea leaves are a method of fortune-telling. In the case of JDE Peet’s, they are also a method of fortune-making. At a hearty discount to market leader Nestlé, the initial public offering of the purveyor of packaged coffee under the Jacobs and Kenco brands can brew up a robust return.
The business was assembled by investor JAB by combining the $1 billion acquisition of cafe chain Peet’s in 2012 with the $10 billion purchase of Douwe Egberts in 2013. A merger with assets owned by consumer giant Mondelez followed two years later. At the top of the price range unveiled on Tuesday JDE Peet’s equity will be worth 16 billion euros. Including debt, its enterprise value reaches almost 21 billion euros, or 13 times last year’s adjusted EBITDA. That’s a discount of more than 20% to rival Nestlé, the number one global producer.
The Swiss giant’s broad range of other businesses make it an imperfect comparator. Still, JDE Peet’s has had a good crisis so far. Only a fifth of its sales came from coffee shops, many of which were forced to close by Covid-19. Consumers switching to making warm drinks at home has allowed the company to maintain its 3% top-line growth rate this year. Coffee lovers may stick to the habit even after lockdowns end.
This shift should also allow JDE Peet’s to keep boosting its operating margins by charging more per cup. The growth of home-brew pods, and aficionados who prefer to grind their own beans, means the price of a home cup of coffee will continue to converge with that charged by coffee shops. According to Euromonitor, global tea and coffee sales are forecast to grow at an average rate of 2.6% a year until 2024. JDE Peet’s reckons improving margins will lift adjusted operating profit by more than 5% a year.
These prospects give Europe’s only big IPO so far this year an extra kick. So does the presence of high-profile cornerstone investors including George Soros. The IPO valuation probably gives JAB a mid-teens percentage return on its investment. The fact that the company led by Chief Executive Olivier Goudet is not selling any shares suggests there are more fortunes to be made.