UPDATE 2-Reynolds shares brave market jitters to pop on Nasdaq debut

(Reuters) – Shares of household goods maker Reynolds Consumer Products Inc (REYN.O) weathered market jitters fueled by the spread of the coronavirus to close up almost 10% in their Nasdaq debut on Friday, a bullish start to the 2020 IPO season.

The shares closed at $28.55, up from the $26 at which the IPO was priced on Thursday. Reynolds ended the week with a market value of around $5.8 billion. Reynolds sold 47.2 million shares in its IPO, raising about $1.2 billion.

It is the first U.S. IPO in 2020 to raise more than $1 billion and comes after a lackluster show by some high-profile debuts last year, including Uber Technologies (UBER.N) and online dentistry company SmileDirectClub (SDC.O).

Reynolds sells storage products and tableware including Reynolds Wrap aluminum foil and Hefty trash bags. In a regulatory filing, the company said its products are used by about 95% of households in the United States.

Unlike a slew of loss-making companies with valuations over $1 billion that went public last year, Reynolds is profitable and expects net income of between $220 million and $224 million in 2019, up from $176 million a year earlier.

However, net revenue is seen slipping to around $3 billion from $3.14 billion a year earlier.

The company “is profitable and operates a mature business in a slow-growth market”, said Jay Ritter, an IPO expert and professor at the University of Florida.

“The valuation is in line with other mature consumer staples companies, with a price-to-earnings ratio based on forecasted earnings that reflects the low risk of the stock.”

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Reynolds intends to use the proceeds from the IPO to cut its debt of $2.48 billion.

“As we pay that debt down, that provides continued improvement to net income,” Reynolds Chief Executive Lance Mitchell said in a telephone interview, adding that the IPO was approximately five times oversubscribed.

The company is backed by New Zealand billionaire Graeme Hart, who controls over three quarters of Reynolds’ voting power.

Rank Group, Hart’s investment firm, bought aluminum producer Alcoa’s (AA.N) packaging and consumer businesses in 2008, which later became Reynolds Consumer Products through multiple acquisitions.

Credit Suisse, Goldman Sachs and J.P. Morgan were the lead underwriting banks on the IPO.

Reporting by Bharath Manjesh and Abhishek Manikandan in Bengaluru; Additional reporting by Joshua Franklin in New York; Editing by Arun Koyyur and David Gregorio



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