If you’re looking to buy shares in JDE Peet’s, the newest coffee company to go public, you might find it to be a difficult task. That’s because, despite the Peet’s Coffee IPO raising $2.5 billion, it trades on Euronext Amsterdam, and doesn’t appear to be available over the counter in the U.S.
No matter. It’s still an IPO worth covering. There are several reasons why, including that the Peet’s Coffee IPO raised a ton of money.
Despite the difficulties buying its stock, the IPO is the second-largest in 2020, behind only the Beijing-Shanghai High-Speed Railway, which raised $4.4 billion in January and trades on the Shanghai Stock Exchange.
It’s interesting that a company that owns such an iconic American brand as Peet’s Coffee would choose to list in Europe and not the U.S. It must have been the right call — it only took JDE Peet’s 10 days to bring its shares to the market.
“We are thrilled to price this offer on Euronext Amsterdam during this extraordinary time,” CEO Casey Keller said in a statement. “Seeing the investor interest in JDE Peet’s reinforces the belief in our strategy and solidifies our role as a global leader in coffee and tea.”
It’s Not Just Peet’s
Although Peet’s is a name most Americans would recognize, especially those on the West coast, the company has more than 50 different coffee and tea brands, including Jacobs, Douwe Egberts and L’OR.
Getting JDE Peet’s to where it is today took a lot of money and leg work by the Reimann family. Their investment firm, JAB Holding Company, has invested more than $50 billion over the past six years building JDE Peet’s into Starbucks’ (NASDAQ:SBUX) largest competitor.
The history of JAB and the Reimann family goes back to 1823 when a German chemical company by the name of Benckiser was incorporated. In 1999, Benckiser merged with United Kingdom-based Reckitt & Colman, to form Reckitt Benckiser (OTCMKTS:RBGLY). In 2012, JAB Holding started selling down its stake in the consumer goods company. Then in 2019, it sold off the last of its shares.
It Makes a Bunch of Money
According to its prospectus, JDE Peet’s had 6.95 billion euros in revenue in 2019, up from 6.53 billion euros only two years earlier. Farther down the income statement, its operating profit grew from 707 million euros in 2017 to 1.04 billion euros in 2019.
In the quarter ended March 31, JDE Peet’s revenues increased 3.1% from 1.63 billion euros in Q1 2019 to 1.68 billion euros in Q1 2020. In terms of operating profits, they grew by 27.6% to 254 million euros.
That’s a lot of coffee.
Peet’s Is Moving Upscale
SVM Asset Management CIO Colin McLean, one of the investment managers who bought shares in the company’s IPO, described JDE Peet’s as a “stable business making a steady move to premium, higher value-added coffee markets.”
Of course, we know another company that participates in the premium coffee market. None other than Starbucks. Interestingly enough, the original owners of Starbucks sold out to Howard Schultz and his partners in 1986, so they could focus their energy on Peet’s.
Post-IPO, JAB Holding will own through its subsidiary, Acorn Holdings, 62% of JDE Peet’s. Mondelez International (NASDAQ:MDLZ) will own 23%. They have deep pockets to go up against Starbucks.
We’ll see if they do. The coffee market’s getting more crowded by the day.
The Bottom Line on the Peet’s Coffee IPO
My favorite coffee stock remains Starbucks. That being said, if JAB Holding were ever to list its stock, I would be all over that. I can’t resist good capital allocators.
JDE Peet’s intends to pay out between 50% and 60% of its net income from the preceding year for dividends. As a result of its free cash flow growth from 700 million euros in 2017 to 1.2 billion in 2019, it should have plenty to meet its objective for rewarding shareholders.
Since listing at 31.50 euros a share, it’s up almost 18% in just three weeks. It will be interesting where it ends up at the end of the year. Year to date, Starbucks’ total return is a loss of 12.8%.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.