Woodward Research issues equity research report on Trade Me

Equity research specialist Woodward Research today issued a report on Trade Me, the dominant online auction and classified advertising company in New Zealand owned by Fairfax Media (ASX:FXJ). Fairfax Media plans to raise $NZ363.5 million through the sale of 34% of Trade Me through an initial public offering (IPO) which closes on 6 December.

Woodward Research’s report concludes that Trade Me is now a mature company with strong cash flows and impressive profitability, and well able to support an attractive dividend. Woodward Research has valued Trade Me at $2.54 per share with a 12-month target price of $2.80 per share.

Nick Lewis, Senior Analyst and Partner, at Woodward Research says, “Trade Me is an iconic and trusted brand in New Zealand. The company experienced explosive growth in its early years, and has continued to grow under Fairfax’s ownership.”

Mr. Lewis continued, “Today, however, the company is reaching its mature growth phase, and we can see that in the company’s slowing revenue growth rate and its profitability margins that are beginning to settle down to more long-term levels. Having said that, we believe that Trade Me will still have the strongest cash flow margins of any company listed on the NZSX. As such, most of the returns to investors will be in the form of dividend rather than capital appreciation.”

Trade Me was founded by entrepreneur Sam Morgan in 1999 and was acquired by in 2006 by Fairfax Media for $700 million, plus an earn-out of up to an additional $50 million, which was fully earned following the acquisition.

Trade Me shares are expected to begin trading on the NZSX exchange in New Zealand and on the ASX stock exchange in Australia on 13 December 2011 at a price of NZ$2.70 per share (and the equivalent price in Australian dollars at the exchange rate on that day).

Mr. Lewis said, “Trade Me coming to market and being made available to individual investors is a wonderful development for New Zealand because it will encourage the retail investor back into the stock market, a good thing for investors and for companies seeking to raise capital, and ultimately good for the country.”

Woodward Research provides in-depth equity research for companies listed on the NZSX stock exchange, including initial public offerings (IPOs). A copy of Woodward Research’s equity research report on Trade Me can be downloaded at no charge from www.woodwardresearch.co.nz