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IPO Watch: The MZB Group

 4 min read / 

The Massimo Zanetti Beverages Group (MZB Group), an Italian firm in the coffee industry, is planning to list a 30% stake this October. Is it a company to keep an investing eye on?

The Basics

To understand whether it is, we must first look at what the company does. Described as the biggest private company in the coffee industry, the MZB Group is a vertically integrated operation that grows, processes, trades, roasts and distributes coffee worldwide. Manufacturing over 120 tonnes of coffee a year, and with more than 20 brands within the group, the firm is a heavy hitter. Notably, 90% of sales come from outside of Italy, and the head and founder, Massimo Zanetti, describes the company as a “global group”.

Expansion

With US$1.35bn in revenue last year, the firm typecasts itself as a growing venture, something evident in recent activities. From Qutio, Educador to Atsugi, Japan, it has been on a spree of café openings under the Segafredo Zanetti brand. More interesting though is its acquisitions, which it hopes to build upon with the capital raised from its IPO.

One that stands out is the recent takeover of Boncafé, where the MZB Group acquired the entire capital share in a deal worth US$85mn. A leader in gourmet coffee in the Middle East and South East Asia, Boncafé hopes to leverage the group’s capital base in order to expand operations.

For the MZB Group, however, the move is more strategic. With the coffee market in developed nations reaching saturation, significant growth will mainly come from places like South East Asia. In fact, as the market research firm Mintel claims, Vietnam (a stronghold for Boncafé) is the world’s fastest growing coffee market, with a locally denominated compound annual growth rate of 26% over the next five years. By absorbing a key brand name in locations like Vietnam, the MZB Group will secure itself massive potential for cash flow growth.

Challenges

However, as this website has written about before (‘Coffee: An Insight’), the industry as a whole will be challenged by changing weather conditions. Recent droughts have pushed up prices on the supply-side, which place a question mark over the reliability of profits in the coming years.

Also important is the lack of liquidity on the Milan bourse (the Italian stock exchange) following a recent fundraising glut. With the MZB Group eyeing up the bourse to float the stake, this could lead to disappointing results. Indeed, two recent IPO flops (Rottapharm and Sisal) highlight the dangers.

Opportunity

Whilst a tight supply-side will indeed be an issue for the coffee industry, the MZB Group has the advantage of vertical integration, which could prove to overcome such difficulties in the short-term. Given this, and the strong expansion record, the firm is definitely one to keep an eye on, as it looks set to enjoy a period of strong growth and profit potential. In fact, given low liquidity on the bourse, the firm could float for a generous price to the enterprising investor willing to capitalise on the opportunity.

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