On the Margin
The IPO market makes a comeback

The IPO market makes a comeback

This post is part of the On the Margin blog.

Wingstop Inc. this month announced plans to sell stock in a secondary offering, and on Tuesday priced that offering at $24 per share. That will enable the selling shareholders — notably Roark Capital — to raise $138 million.

It’s also a pretty strong offering. The price was only slightly under the chicken wing chain’s closing price on Tuesday, suggesting that there was good demand from the institutional investors who buy the stock in such offerings.

The strong offering comes after Wingstop reported earnings growth of 12.5 percent in 2015, along with same-store sales growth of 7.9 percent.

Nick Mazing, founder and portfolio manager with Ampera Capital, said that if interest in a secondary offering is strong, there will be a small discount to the closing price and orders are closed quickly — sometimes, the deal size is increased.

“The Wingstop recent Q4 results and 2016 guidance were good, so the secondary was well received, unlike [Habit Restaurants, Inc.’s] recent attempt,” Mazing said. “The discount at which the shares were placed with institutional buyers was small and it only took a day to build the book with orders. Not only that, but Wingstop was able to upsize the offering by 20 percent.”

It also demonstrates some faith in the restaurant industry on the part of institutional investors that have been shy when it comes to offerings in recent months.

Recent IPOs have seen their stocks plunge. Only five of 11 IPOs since the fall of 2013 are currently trading above their offering price, not including public company spinoffs and reverse IPOs. That includes Noodles & Company, Bojangles’ Inc., and Fogo de Chao Inc., all of which are down more than 20 percent from their IPO price.

That and a weak market for IPOs overall had put a virtual halt to the market for stock offerings. Habit postponed a secondary offering in November, for instance, while initial public offerings have been largely non-existent in recent months following years in which the market welcomed just about everything.

Still, the performance of recent IPOs isn’t quite as bad as it seems. Thanks to the strong performance of chains like Dave & Buster’s, Shake Shack, Inc., and Zoe’s Kitchen, the chains have an average nearly 29 percent as of close on Tuesday.

And Wingstop has generally performed on Wall Street. While its stock hasn’t exploded like Zoe’s Kitchen or Dave & Buster’s, both of which remain well over double their offer price, it’s up 27.6 percent.

The restaurant industry overall, by the way, has performed relatively well. The NRN Restaurant Index is up nearly 4 percent year to date.

So while the restaurant IPO market is much slower than it’s been, institutional investors are still willing to dive in for the right concept.

Contact Jonathan Maze at [email protected]
Follow him on Twitter at @jonathanmaze

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