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CSTE - Caesarstone IPO

 April 15, 2012 02:11 PM


CSTE - Caesarstone Sdot-Yam plans on offering 7.66 million shares at a range of $14-$16. Insiders will be selling 2 million shares in the deal. JP Morgan, Barclays and Credit Suisse are leading the deal, Baird and Stifel co-managing. Post-ipo CSTE will have 32.37 million shares outstanding for a market cap of $486 million on a pricing of $15. 1/3 of the ipo proceeds will go to pay a dividend to insiders, the remainder to complete distributor acquisition, expand production lines and general corporate purposes.

Kibbutz Sdot-Yam(KSY) will own 53% of CSTE post-ipo. KSY is an Israeli commune established in 1940. KSY founded CSTE in 1987.

From the prospectus:

'We are a leading manufacturer of high quality engineered quartz surfaces sold under our premium Caesarstone brand.'

[Related -Sprint Corporation (S) Q1 Earnings Preview: Trending Towards Danger?]

Engineered quartz slabes primarily for kitchen countertops in the renovation and remodeling end markets. Other end products include vanity tops, wall panels, back splashes, floor tiles, staris and other interior surfaces.

Apparently the use of quartz is relatively new and the fastest growing material in the countertop industry. Between 1999 and 2010, quartz sales to end-consumers have grown 16.4% annually compared to 4.4% total worldwide countertop growth.

In 2011 quartz received the highest overall score among countertop materials from Consumer Reports Magazine.

As of 2010, engineered quartz had just a 4.3% penetration of the global countertop market. In the US penetration is just 5%, however penetration in Australia is 32% and in Israel 82%. The growth opportunity here would appear to be the US as 1) it is an underpenetrated quartz counterop market and 2)Quartz countertop sales are growing and reviews appear to be strong.

[Related -Heading into July FOMC meeting]

Sold in 42 countries via direct sales and distributors. Australia accounted for 34%, US 23% and Israel 15% of 2011 revenues.

***Solid 13% market share in global engineered quartz selling volume in 2010. Leading position in Australia, the US, Israel and Canada.

CSTE has displays in over 8,000 locations in the US.

Sector - Global countertop industry generated $68 billion in end consumer sales and installations in 2010. US accounts for 20% of global countertop sales to end-consumers. Not the best sector to be in 2008 and 2009 as demand is driven by reneovation/remodeling of existing homes and the construction of new homes. A future downturn would undoubtedly hurt CSTE's share price.

***Global countertop market has been flat at best since 2007 while CSTE has shown an 18.7% compoud annual growth rate.

Legal - Since 2008 there have been 14 lawsuits filed against CSTE alleging silicosis through exposure while cutting, polishing, sawing, grinding, breaking, crushing, drilling, sanding or sculpting quartz tabletops. All but one of the suits is in a preliminary stage.


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