Should You Invest at Vivara (VIVA3)?
IPO is an acronym (initial public offering). This name is used to characterize when companies, for the first time, list their shares to the general public by offering their shares on the stock exchange.
Once a company conducts an IPO, anyone can become a shareholder of the company by merely buying their shares traded on the stock exchange.
It is always excellent news to have new stocks coming to the stock exchange, as this translates into more investment options. After the year of 2018, with a lower than expected number of IPOs, new companies are preparing to go to market in 2019 in Brazil.
This September is the time for Vivara, the largest jewelry network in Brazil, to make its offer. Below you can see a complete analysis of this operation.
The IPO occurred this Thursday at 10 am in São Paulo, Brazil.
Nelson Kaufman was the founder who gave it up the most significant piece of the pie in the IPO. Before the IPO, his shares was 48%; after the secondary and primary offerings, it will rise to 19.32%.
These will be a mixed IPO, i.e. it will have both a primary offering and a secondary offering.
A primary offering occurs when new shares are issued, and net proceeds are entered for the company to use in its operations. The secondary offering occurs when current shareholders sell existing shares to other investors. In this case, there is no cash inflow in the company’s cash, but payment for selling shareholders.
In Vivara’s IPO, most of the shares traded concern a secondary offering. Considering the base offer, of the total of 70,854,983 shares to be traded, 51,960,321 will be from current shareholders selling their positions.
73% of the supply will be secondary, which is a very high number. Selling shareholders also have two devices, called the additional lot and complementary lot. The additional lot is available for sale if selling shareholders choose to do so. The supplementary lot can be used only in case of excess demand for the offer when the current shareholders can again sell another number of shares. If the additional lot and the complementary lot are exercised, the percentage of the secondary offer concerning the total offer will be even higher.
Due to this large number of shares to be sold, the main shareholders of the company will have their participation in the company significantly reduced.
Why VIVARA need the IPO?
Considering the average price of the indicative range of R$ 23.29, the company will debut with a market value of R$ 5.5 billion.
According to Vivara, the resource from the IPO will be used it for
- Opening of new stores (65%),
- Expansion of the manufacturing park (15%),
- Launch of a new brand (12.5%) and
- Investment in technology and innovation (7.5%).
Vivara’s valuation is being considered higher than Tiffany’s market value. Tiffany is one of the most valuable jewelry brands in the world, with a much more extensive history and market consolidation in the US than the Brazilian.
In all valuation indicators, Vivara presents higher results than Tiffany.
We need to consider two critical factors in this IPO:
- Most of the trading volume will not go to the company’s cash for new investments, but the founding shareholders.
- High Valuation.
Vivara has products ranging from R$ 50 toR $ 5000, i.e., from the small gift to a piece of jewelry. This price positioning allows Vivara to compete, for example, for the small gift market like a premium chocolate box.
However, the Brazilian market has not shown signs of real growth recovery for 2020. And the level of delinquency has risen to worrying levels in the last 18 months.
It is hard to believe that the Brazilian market will react quickly in the next 18–24 months to justify the need for so many new store expansion across Brazil for the next five years.
And this directly impacts the valuation presented by the company. With the valuation offered to the IPO, I believe there is a hyper valuation of the stock at the moment.
In a simple analysis based on the documentation presented in the IPO and indicators of the Brazilian market, leads me to believe that the value of the lawsuit should reach the value of R$ 17.10 in the coming weeks.