The Liberty Tax Service IPO Cometh

Company has strong financials and aggressive expansion plans

   

It certainly has been a taxing time for companies like H&R Block (NYSE:HRB). During the past three years, the average annual return for the tax prep operator was a dismal 14.76%. What’s more, several rivals have gone bust, such as Jackson Hewitt (though the company recently has gotten approval for a reorganization plan).

But as the United States deals with its budget problems, it seems inevitable that taxes will increase and become more numerous. And despite all the talk of tax reform, the likelihood is laws will get even more complicated.

So it is in this environment that Liberty Tax has filed to go public. The company expects to raise about $90 million in the offering.

How has Liberty Tax been able to stand out? First of all, the company has flamboyant marketing techniques. For instance, it hires people to dance on street corners while wearing clothing in the likeness of the Statute of Liberty. It’s hard to miss, and it seems to work.

Another key part of the strategy is the franchise model, which is fairly capital-light. It means Liberty Tax can focus on marketing/advertising, educational support and product development. The franchisees, on the other hand, are the ones taking on the financial risks of offices.

Still, from 2001-11, the number of locations has skyrocketed from 508 to nearly 3,900. In fact, Liberty Tax is the No. 3 retail provider of tax returns in the U.S. and the No. 2 player in Canada.

As should be no surprise, Liberty Tax’s financials have been strong. During the past year, revenues have increased from $84.6 million to $95.5 million, and the company had a profit of $15.8 million.

Besides offering tax return services, Liberty Tax has been aggressive in providing value-added products. These include things like electronic refund checks, prepaid debit cards, refund anticipation loans and instant cash advances.

It’s true that Liberty Tax must contend with the growth of online alternatives, such as Intuit’s (NASDAQ:INTU) TurboTax. Yet it looks like the company still has lots of room for expansion — the company believes it can add more than 6,000 new offices.

Of course, Liberty Tax likely will not be a crazy growth play like Pandora (NYSE:P) or LinkedIn (NYSE:LNKD). But it does have a strong platform for a steady ramp. In other words, it’s the kind of small-cap company that — over time — might produce some nice returns.

Tom Taulli is the author of “All About Short Selling” and “All About Commodities.” You can also find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.


Article printed from InvestorPlace Media, http://investorplace.com/ipo-playbook/liberty-tax-service-ipo/.

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