Short Shares Of APFH Ahead Of IPO Lockup Expiration

AdvancePierre Foods - APFH - Event Date Jan 11, 2017.

What’s the play? When APFH’s IPO lockup period expires on January 12th, pre-IPO shareholders and insiders will be allowed to sell shares for the first time. Since APFH’s strong fundamentals have helped the IPO to perform very well to date, it’s likely that these sellers – who own approximately 65 million shares – will want to lock in profits when the lockup expires.

Fundamentals and IPO Performance:

AdvancePierre is the largest US supplier of ready-to-eat food for institutions (i.e. schools and restaurants). The company is based in Blue Ash, Ohio and reported $1.61 billion in net sales in 2015. Oaktree Capital Management, L.P. owns majority voting power of the company.

AdvancePierre Foods went public on July 14th, raising $391 million through its offer of 18.6 million shares. Shares are up approximately 36% from their initial price and currently trade at $28.55 (as of market-open 12.19).

Who are the shareholders?

Two of APFH’s largest shareholders - Oaktree Capital Management and APFH’s retiring CEO John Simmons – will be major players to watch. Oaktree, an investment management firm, owns 53 million shares, and will likely be looking to book profits and lighten up on their position. John Simmons, the retiring CEO, owns 2 million shares and could be looking to lock in some profits as he departs.

Bottom Line:

Given the strong performance since the IPO, we imagine insiders will be eager to cash in on their gains on APFH. If insiders sell even a portion of the ~60 million shares (~ 77% of total shares) currently restricted from sale, they could considerably push down APFH share price.

We recommend investors establish a short position now ahead of the lockup expiration and ride shares lower on the anticipation of the lockup expiration and during the event itself. We recommend that investors cover their positions after the lockup expiration has occurred on or around January 12. 

Disclosure: I am/we are short APFH.

Disclaimer: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no ...

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