Waterstones IPO: what to know and how to buy shares

When could the Waterstones IPO take place?

Waterstones is currently held within a larger group which includes US giant Barnes & Noble. CEO James Daunt previously explored an Initial Public Offering (IPO) in 2018 before its sale to private equity group Elliott — which then went on to acquire Barnes & Noble.

However, in an interview with the Financial Times late 2023, Daunt noted that a stock exchange listing would ‘be a very sensible place’ for the bookseller.

He further considers that ‘in terms of the ownership of a business which is growing, but not now dramatically, I would have thought it would be in the public markets. We will pay a very nice dividend for a pension fund-type investment rather than being in private equity.’

Beyond this, the CEO also thinks that ‘a workforce that “is extremely vocational and extremely committed’ also lends itself to a ‘stable ownership focused on the medium to long term.’

As the IPO market starts to recover with falling central bank rates, a launch may be in the offing, despite a one-off corporate setback in 2023.

How to buy Waterstones shares if the company lists

If Waterstones do end up listing in the UK, you can buy their shares from £3 commission with us. That's the rate if you've traded 3+ times in the previous calendar month, otherwise our standard fee is £8.

You'll be able to invest in Waterstones right away on the day of the listing.

1. Do your research on IPOs
2. Open a share dealing account
3. Search for Waterstones on our share dealing platform
4. Choose the number of shares or amount of money you wish to invest
5. Place your deal

When dealing shares, you own the stock and become a shareholder in the company. You'll profit if the share price rises above the point at which you bought, or potentially from any dividends paid. You could get back less than you put in.

You can also trade the Waterstones IPO using leverage through a variety of products with us. This means you could gain or lose money quickly and could end up losing more than your initial deposit. This is higher risk and requires thorough risk management.

Read more about IPOs:

• Upcoming IPOs to watch
• How to trade or invest in IPOs
• Trading IPOs on our platform

What will Waterstones be valued at and what will the share price be?

In financial results in the year to 29 April 2023, sales grew by 13% year-over-year to £452.5 million, driven by a post-pandemic recovery and ‘encouraging growth in London.’

However, profit after tax fell by more than 70% year-over-year from £42.1 million to £12 million, driven by now resolved problems with the then new warehouse system, which cost a one-off £13 million, alongside the expense of acquiring competitor Blackwell’s in August 2022.

The company also had a bad year in 2021 when it made an after-tax profit of just £2.9 million during the pandemic lockdowns, though it rebounded the year after.

With a typical annual profit of circa £42 million, you might expect an IPO valuation in the region of £300 million to £500 million with a price-to-earnings ratio in the 10-15 range. This is typical of a steady retail business in the UK, though remains a speculative valuation dependent on broader economic conditions and sector trends.

You might expect a share price of around 100p at launch, comparable to other high street retailers. However, rival WH Smith trades with a share price of circa 1,300p and a market cap of £1.65 billion — and generated profit before tax of £166 million on revenue of £1.92 billion in its last financial year. This makes estimating a share price and market capitalisation at launch more of an art than a science.

What is Waterstones’s business model?

Waterstones was founded in 1983 by Tim Waterstone, who wished to revitalise the British bookselling space. The company initially grew quickly, and has managed to succeed despite multiple threats over the years — including online sellers such as Amazon, eReaders, and new entrants to the space.

Arguably, customers put a premium on being able to browse a well-kept physical shop, and reading actual books. Now with over 300 locations, the company is easily the most well-known UK bookseller, and its influence in book popularity remains huge, partially due to its awards such as the Waterstones Children's Book Prize, Waterstones Debut Fiction Prize and Waterstones Book of the Year.

The company also maintains an iconic events programme and literary festival designed to bring readers closer to authors. But it’s not just books — the retailer also operates in-store cafés, and sells toys, games and greeting cards.

Much of the success comes down to the influence of CEO James Daunt who took the reins over a decade ago. Nowadays, the company turns a profit all year round rather than just in the Christmas period, reportedly because management gives local shop managers the autonomy needed to sell to their individual markets.

Daunt was also responsible for selling eReaders in Waterstones contrary to prevailing wisdom, and despite the launch of Amazon’s Kindle initially hurting sales at the shops. The CEO has also previously noted there may be synergies from bringing together the back-office functions across the wider group, including Barnes & Noble.

Despite the advent of technology, a record 669 million physical books were sold in the UK in 2023, with research from Nielsen BookData highlighting that far falling out of popularity, gen Z was responsible for 80% of purchases in the 12 months between November 2021 and November 2022.

This has arguably been the result of BookTok — a segment of TikTok where readers post recommendations to followers allowing for free mass marketing. Research from the Publisher’s Association notes that 60% of 16-25-year-olds have said that the hashtag has helped them discover a passion for reading, which has now been used in over 60 billion videos.

Of course, Waterstones remains in competition with massive online titans like Amazon, in addition to other traditional bricks and mortar retailers like WH Smith.

Why are there Waterstones ethical concerns?

On the plus side, Waterstones is responsible for encouraging a reading culture across the UK. The events it sponsors with authors and book clubs are also hugely positive, and it provides a strong platform for new writers to break into the space.

However, detractors note that through acquiring Foyles, Hatchards, Wordery and Blackwell’s, it has a dominant market position which has may have contributed to independents going out of business.

Further, current owner Elliott has a reputation for aggressive debt-collecting practices, and also for pay disparity between management and workers, which has seen consumer advocate group Ethical Consumer downgrade Waterstones in recent years. There are also environmental concerns given the volume of books being printed.

However, these same downsides are true of many retailers and their backers.

Waterstones-related investments

While you wait for the Waterstones IPO, there are several other publicly traded booksellers to consider. Perhaps the closest comparator remains the well-known high street retailer WH Smith, but for those seeking some diversity, Amazon control’s the lion’s share of the bookselling market — indeed, this was its original venture. Card Factory is also a popular growth choice, though as the name suggests, this company is focused on greeting cards.

For those seeking to invest in the wider sector, the iShares STOXX Europe 600 Retail UCITS ETF DE tracks the European retail sector, with top holdings including Next and B&M European Value Retail . It has a moderate expense ratio of 0.46%.

Waterstones IPO summed up

• As the IPO market starts to recover with falling central bank rates, a launch may be in the offing
• In financial results in the year to 29 April 2023, sales grew by 13% year-over-year to £452.5 million
• Now with over 300 locations, the company is easily the most well-known UK bookseller
• A record 669 million physical books were sold in total across the UK in 2023 driven by growing popularity among young people