As mentioned in my STEF write-up, US Cold Storage company Lineage went public a few days ago and was able to do so quite successfully.
As IPO prospectuses often contain some quite interesting information, I wanted to quickly look through and extract what I find interesting. Especially on a hot day like today, reading a lot about cold storage is quite comforting 😉
Valuation
Let’s look at the new price point we got through the IPO. Unfortunately, Lineage Cold Storage is not yet available in TIKR, so let’s hae a quick look at comps “by hand”:
Bloomberg gives us a Market cap of 19,2 bn USD based on 220 mn shares outstanding. Total revenue in 2023 was 5,3 bn (thereof 3,9 bn warehousing). Net debt is 9,2 bn. EBITDA in 2023 was 1,15 bn (net income is negative). This results in an EV/EBITDA multiple of currently (28,4/1,15) = 24,7x EV/EBITDA compared to 5,3x for STEF and 19,2x for Americold.
EV Sales is 5,4x vs 0,6x for STEF and 4,3x for Americold.
EBITDA margins are 22% for Lineage vs. 8,6% for STEF and 20,1% for Americold.
Net debt/EBITDA is 8x for Lineage (pre IPO, ex leases), 2,3x for STEF and 6X for Americold.
So we cansee that margins are clearly higher for the two US companies, most likely due to the higher percentage of trucking sales in STEF’s P/L, but Lineage sets a new high point for valuation. Being a relatively large US stock clearly helps, but I guess the major factor is positioning Lineage (and Americold) as a Real Estate company is the “real trick” , despite only 3/4 of the sales are from warehousing. Logistic Real Estate is considered a “safe asset” and investors seem to demand capital costs that are significant lower than “normal” corporates.
I was not able to compare Returns on capital or assets, As Lineage uses a metric (Net Operating Income Yield) that excludes the (significant) Administrative costs. They seem to target 9-11% on that metric, the “true” ROIC might be 2-3% lower.
In summary, I would not consider Lineage as an investment. The stock looks very expensive for a Cold Storage Corporate (which in my opinion it ultimatley is). However, they cleverly managed to position themselves as a real estate company and real estate investors seem to be very happy with low returns. Congratulations. But once again it supports my view that STEF, although not directly comparable, is massively undervalued. We will see if and when the valuation gap is closing, but I will happily wait for a couple of years. And maybe this IPO will further increase interest in the stock. Or STEF at some point in time gets the hint and the position themselves more as real estate play.
IPO prospectus material:
Competition
Interestingly, Lineage, despite being acitve in Europe, doesn’t even mention STEF as a competitor:
According to STEF’s annual report, STEF has 11,6 mn Cubic meters of storage which translates to 11,6*35= 0,41 bn Cubic feet and would make STEF globally the number 3 or 4 on this table.
I am not sure why they didn’t include STEF but if you do a comparison of listed peers one one peer is valued so much lower, some investors might rather buy the cheap one. That’s clearly speculation from my side, but I don’t think that they simply “forgot” STEF as they are active in Europe, too.
Regional foot print:
This is their reginonal footprint globally:
There is a clear Focus on the US. Interestingly, Europe, which accounts for 20% of capacity looks quite interesting. Some markets overlap with STEF (UK, Benelux), but overall it looks less like a real network than a collection of regional businesses.
Power costs:
That’s interesting information. I have not seen power costs seperated for STEF.
Warehouse age
One interesting metric that the show is the age of the warehouses. They claim to have an advantage because theirs are the newest one:
As a relaticely new company (founded in 2008) this is maybe not a big surprise. Not sure what that means in practice.
Barriers to entry:
No surprise here, Cold Store Warehouses are very expensive to build.
Growth drivers:
Some interesting aspects here:
I didn’t have Urbanization on my Scorecard. However, as this is a continuing trend even in dirt poor Europe, I happily take it up.
Cap Rates
A Cap Rate in Real Estate means the “expected Net Operating Income” that investor require for an real estate investment. The prospective gives an interesting insight on the uS market:
Some interesting KPIs:
This is an interesting “per pallet” table from the prospectus. Interesting to see that in total, storage and handling costs ~300 USD per pallet annualized. That’s quite a lot.
Debt
This table shows that including lease liabilities, debt is even at 10,7 bn pre IPO:
Type of Warehous Matrix:
Typical Expense Split:
International Cold storage development capacity:
This chart is interesting. It shows that for instance France and Italy have relatively little Cold storage capacity.
