ACI IPO feedback, missing enthusiasm
We got a lot of feedback about our most recent Best Idea Long idea after our presentation yesterday. A significant minority was not favorable, and those who agreed with us were not overly enthusiastic, but pragmatic, which is how we would characterize ourselves. The most critical concern was the company’s inadequate cash flow generation, which in hindsight, we should have addressed.
Other concerns included projecting the comp boost from COVID-19 forward, its two previous failed attempts at going public, the lackluster performance since the last IPO attempt, and the market reaction to Kroger’s latest results. The lackluster enthusiasm is generally not a favorable sign for IPOs, but we have seen less, and companies still go public. Those IPOs generally did not perform great out of the gate, but after a very short period, there was a low correlation with later performance. Each market environment and company have different circumstances, so specific examples need to be viewed in that context. Most recently, I remember how much difficulty Peloton (covered by Brian McGough) had with matching the first order. Peloton’s circumstances were different in that the initial market reception was weak more due to valuation and aggressive pricing than overall enthusiasm. Does anyone remember CNBC featuring the market maker stuck on the phone for hours as they couldn’t open trading? IPOs are more sensitive to signals like insider selling, which is why the convertible preferred investment is notable.
We think the IPO will be completed, and the valuation is attractive. Based on our feedback, we would expect pricing will not be at the high end of the range. The structural challenges of a conventional grocer have not changed due to the pandemic, nor do we think current trends will continue indefinitely. We have learned the hard way that shorting for a problematic comparison a year from now is a tough strategy to execute. Albertsons’ indicated valuation and the current strength in the business creates an upside opportunity. Investors looking for a quick return on the first day of trading should understand Albertsons does not appear to be a “hot deal.”
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Alcohol remains elevated in off-premise (BUD)
Total alcohol sales for the week ended June 13 was 21.2% in the off-premise channel. Spirits grew 25.1% while wine grew by 20.1%. Beer category sales grew 20.3% for the week, according to Nielsen, as seen in the following chart. The beer category has decelerated except super premiums, which grew 22.7% and flavored malt beverages, which grew 19%. Michelob Ultra’s 29.7% growth for the week led to the super-premium category. Hard seltzer grew by about 250%.
Sales at bars plummet (BUD)
Total spending at local bars, as reported by Womply (a CRM provider) have slowly increased from the end of March. The improvement picked up as more bars opened in May and June. Sales reached -35% in mid-June before falling back to -64% on June 20. Stories of COVID-19 outbreaks after people visited bars have likely contributed to the recent drop in sales. On-premise is an important and missing part of the business for the larger brewers but is much more important for the craft brewers who have nearly double the on-premise mix at 30% of sales.
