Bojangles’ IPO: Get Ready for a Sweet Deal

Growth and strong brands go together like chicken and bicuits

Bojangles‘, a restaurant chain with more than 600 locations, has set the terms for its upcoming IPO.

bojangles-boja-stock-185The company expects to issue 6.3 million shares — on the NASDAQ under of the ticker of BOJA — at a range of $15 to $17.

The lead underwriters on the Bojangles’ IPO include Bank of America Corp (NYSE:BAC), Wells Fargo & Co (NYSE:WFC), Jefferies, Barclays PLC (NYSE:BCS), Goldman Sachs Group Inc (NYSE:GS), Piper Jaffray, William Blair, KeyBanc Capital Markets and RBC Capital Markets.

Bojangles’, which has been around since 1977, provides breakfast all day (roughly 38% of revenues are generated by 11 a.m.). According to the S-1: “[We have] become an iconic brand with a cult-like following due to our famous, made-from-scratch biscuits baked every 20 minutes, our fresh, never-frozen bone-in fried chicken, our unique fixin’s and our Legendary Iced Tea.”

Details on the Bojangles’ IPO

In terms of the format, Bojangles’ provides fast-casual quality of food but with quick-service speed (about 80% of traffic is drive-thru and carry-out). The menu is also affordable, with the average check at $6.68.

And yes, the growth has been strong. From fiscal 2011 to 2014, revenues grew from $299.9 million to $430.5 million and net income jumped from $4.6 million to $26.1 million. But this was not just about launching new restaurants. Keep in mind that system-wide comparable sales have increased for the past 19 consecutive quarters. In fact, they posted a nice 7% increase in fiscal 2014.

There also appears to be lots more room for growth, which should be a key draw for the Bojangles’ IPO. Within the company’s 10-state footprint, there is an opportunity to build more than 1,400 locations. As for the U.S., the capacity is more than 3,500 locations. Although, for now it looks like the company will remained focus on its current markets, planning for a steady growth of new locations at a 7% to 8% annual rate.

But Bojangles’ should also benefit from its focus on breakfast, which is a fast-growing part of the restaurant business. According to research from Mintel Group Ltd., the category is expected to increase 30% to $35.7 billion over the next five years.

Bottom Line for Bojangles’ IPO

There have been several red-hot IPOs in the restaurant sector lately, especially for fast-casual operators. The most notable deal is Shake Shack Inc (NYSE:SHAK), whose shares are up a sizzling 220% over its $21 IPO price.

However, as for BOJA stock, the valuation is certainly much more reasonable. Assuming the offering is priced at $17, the price-to-sales multiple would be about 1.4. This compares to SHAK’s multiple of 7. And the BOJA valuation also looks favorable compared to other recent IPOs from fast-casual companies. For example, the price-to-sales multiple for El Pollo Loco Holdings, Inc. (NASDAQ:LOCO) is currently 3.

In other words, the Bojangles’ IPO could be quite tasty, especially given the company’s brand, unique menu and growth profile.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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