RPT-IPO VIEW-Dollar General set to price at rich valuation
(Repeats to widen distribution)
* Valuation seen as rich
* IPO set to price on Thursday
NEW YORK, Nov 6 (Reuters) - Dollar General (DG.N) is set to go public next week, but the discount retailer could see mixed results in its closely watched initial public offering as its private equity backers have valued the company richly.
The $750 million offering of the retailer controlled by private equity firm Kohlberg Kravis Roberts & Co [KKR.UL] is expected to price on Thursday and begin trading on the New York Stock Exchange next Friday.
Dollar General, which has 8,700 stores across the United States, plans to sell 34.1 million shares for between $21 and $23 a share. At those prices, Dollar General would be valuing itself more richly than competitors like Target Corp (TGT.N), Wal-Mart (WMT.N) and Dollar Tree .
"The valuation doesn't look great," said Nick Einhorn, research analyst with Renaissance Capital in Connecticut. "I wouldn't expect it to be a home run."
"It wouldn't shock me if it ended up being similar to a Dole Food (DOLE.N) which ended up trading down" in its first day of trading last month, he said.
At the midpoint of its pricing range, Dollar General would be valued at roughly 19.4 times 2009 earnings, according to IPOdesktop.com. That compares to valuations of 14.8 times earnings at Wal-Mart and 18.3 times earnings at both Target and Dollar Tree. (DLTR.O)
Still, Dollar General has done a good job improving its earnings potential in recent years, improving store layouts and tweaking the discounter's brand, analysts said.
"The stores look better. They're operating them better. It also doesn't hurt to be a dollar store in the worst recession we've had since the '30s," said Telsey Advisory Group analyst Joseph Feldman, who believes the company has earned the higer valuation.
"It's above its peers, but it's a more nimble company. It's done a little bit better on a consistent basis during the recession," said Francis Gaskins, president of IPOdesktop.com.
"It'll probably trade within the range" of $21 to $23 a share after debuting on Friday, he said.
PE WORRIES
Dollar General was acquired by KKR in 2007. Private equity companies have been looking to take advantage of the resurgent stock market in order to unload portfolio companies. Continued...
