Jamaica Stock Exchange investors should be seeing a new IPO coming to the market sometime in July, subject to regulatory approval, with Sygnus Real Estate Finance getting ready to blast out of the box reports reaching this publication indicate.
The company, which is said to be dedicated to investing in and funding real estate developments through a combination of debt capital as well as equity capital, has projects on its books already, with developments in St Ann, St Catherine and Kingston, which the principals expect to extract extra value by way of creative acquisition and disposal. The company strategy is to fund new developments through real estate notes secured by a charge over the properties.
The company, which will be separate from Sygnus Credit Investments, could benefit from funding from them and is expected to raise $3 to $4 billion in the region. The company is coming to the market at a time of unprecedented construction of buildings in the country. Reports reaching ICInsider.com indicate strong buying interests locally and from overseas in townhouses and detached units in the country’s hills, and many see Jamaican real estate as cheap.
Also coming around July is Jamaica Fibreglass Products that produces furniture and bedding, to raise approximately $230 million for expansion purposes and Spur Tree Spices may make it towards the end of the year to pull in around $250 million. The company says it has been manufacturing all in one seasoning and sauces since 2006 for the local and export markets.
There has also been chatter in the marketplace that Jamaican Teas may consider a spin-off of its manufacturing arm into a separately listed company.
IPOs coming in your future
High level of allocation for Fesco shares
Subscribers will get over 43 percent of the shares they applied for in the IPO of Future Energy Source, this will be one of the highest allocations in recent years for an IPO, but it may suggest a limited upside for the price initially.
Applicants in the General Public Pool receives 1,000 shares plus aroud 43.876 percent of the excess for they applied. The Brokers for the issue states that “multiple applications from the same JCSD account for each pool were combined and treated as one application for the purposes of allocation.
NCB Capital Markets receives its full allotment of 100 million shares. NCB Insurance Agency & Fund Managers Limited gets the full allotment of 16.245 million shares. The balance of shares in the Broker Reserve Pool of 58.755 million, which were not taken up, is transferred to the General Public Pool.
Key Partner Reserve Pool applicants will receive up to the first 250,000 shares plus approximately 80.195 percent of the balance applied for.
Applicants in the Employee Reserve Pool receives the first 50,000 shares plus approximately 72.32 percent of the rest.
Refunds for Applicants who did not receive allotment fully will commence April 14, 2021, NCB Capital Markets states.
Oversubscribed
Future Energy Source Company Initial Public Offer of 500 million shares, which ICInsider.com indicated last week should be snapped up quickly by investors, with the company having long-term prospects for strong growth, did just that, with investors snapping the shares within two days of the opening.
NCB Capital Markets, the brokers for the issue, reported on Thursday that the issue, priced at 80 cents per share and opened on Wednesday, closed on Thursday the Junior Market IPO issue was oversubscribed. The successful closure of the issue will see the listings of companies rising to 42 from the current 41 on the Junior Market of the Jamaica Stock Exchange.
The company that trades as Fesco reports earnings of $92 million before taxation for the period to December last year from revenues of $4.35 billion and is projecting pretax profit of $151 million for the year to March 2021 and $264 million for the 2022 fiscal year. The plant is for two new gas stations to be added to the current 14 before the end of 2021.
Fosrich APO coming
FosRich, a distributor of lighting, electrical and solar energy products and a Junior Market listed company, seems set to go back to the capital market to raise funds for expansion and reduce loan funding.
“We are currently examining a possible additional Public Offer (APO) in 2021,” managing director Cecil Foster stated in response to ICInsider.com enquiry as to why would they not take advantage of favourable market conditions currently to reduce the high debt load.
Fosrich borrowed debt totalling $1.6 billion is more than twice the Shareholders’ equity of $869 million at the end of December last year. The company has lent nearly $400 million to a related party that should be repaid this year, with the proceeds expected to reduce the debt load. Even after that, the company will still be overleveraged and will need approximately $500 million in new equity to bring its financing to accepted levels. Any new issue seems unlikely until the last quarter of 2021, with the company annual general meeting that will likely be held in August, as was the case in 2020 that would most likely approve such an issue. Additionally, with the stock now price over $5, a stock split would likely be considered to be approved at the 2021 AGM.
The company had a successful 2020 financial year with increased profits from rising sales and the stock price rising 31 percent so far in 2021.
Fesco IPO opens next week
Future Energy Source Company (Fesco) initial public offer of shares will open at 9 am on Wednesday, March 31 and close on April 9, at 4 PM, unless it closes earlier.
The issue comprises 300 million new shares with 200 million to be sold by existing shareholders at 80 cents each. If successful, the total issued shares will be 2.5 billion, with the shares slated to list on the Jamaica Stock Exchange Junior Market.
The projection shows a profit of $151 before taxes for the year ended March 2021 from revenues of $7 billion and earnings per share of 7 cents. The company forecast revenues of $106 billion and a profit of $264 million or 10.5 cents per share for 2022.
ICInsider.com had earlier done a detailed review of the offer and rated it a buy with long term growth prospects as there is much room for expansion as it currently has only 14 service stations under its banner. NCB Capital Markets is the lead broker.
Earnings projections wanted for all IPOs
FESCO may have computed the projection of income and profit to 2025 incorrectly by overstating some expenses but they are on the right track and must be commended for including the forecast in their prospectus, a very useful addition.
This publication has been rightly calling for all prospectuses to include forecasts of income and profits for three years at a minimum, but prior to the FESCO issue only new companies have been doing so. The lack of forecast is a disservice to the investing public.
The Alliance Financial Services prospectus released to the public in December does not contain any forecast of revenues and profit so was the case for Tropical Battery in late 2020 as such, FESCO decision to include a forecast maybe just a voluntary exercise rather than a standard for the industry that investors can look forward to.
Management who are responsible for the contents of prospectuses has much more information about a company’s future than the investing public. Since markets depend on good and timely information to thrive, the lack of forecast in all prospectuses is a disservice to the capital market and investors. To ask new starts up companies to provide a forecast of the future and not more mature companies who are in a better position to do so defiles logic.
Stockbrokers taking companies public should help to raise the standard by putting forecast in all prospectuses for the benefit of the market development and the Jamaica Stock Exchange should insist on it and so raise the standard of information going to the public.
Investors gobble up new issues
The Jamaican economic and financial environment has undergone much change over the past five decades or so. Since the early 1970s, the country lost its way and endured years of negative economic and in cases social development.
The evidence can be seen in an exchange rate that was US$1.10 to the Jamaican dollar to nearly $150 to one US dollar now. Interest rates rose from 5.5 percent in 1970 for governments Local Registered Stock, by the dark years in 1990s rates on government paper were as high as 52 percent in 1994. The average Treasury bill rates, between 1992 and 1994 was 39.5 percent. That was the challenge that the banks and businesses face in that period that led to the collapse of the businesses and the destruction of the financial sector.
The above set the stage for the state of the capital market in Jamaica now. In 1986, National Commercial Bank as it was then named went to the market, with the issue pulling in $249 million or US$45 million and attracted over 30,000 shareholders in a heavily oversubscribed issue. The total amount attracted seems to be the largest public issue ever in the local market.
That was then, now interest rates have hit levels that are the lowest on record, with Treasury bill rates now less than one percent and there are now more than 200,000 investors owning shares compared to around 40,000 after the NCB issue, making for a larger pool of investors to draw on to take up new issues.
Three companies went to the market to raise funds in January and all were successful with the latest Derrimon Trading Company invitation for subscription of 1,498,698,931 Ordinary Shares with the option to upsize was oversubscribed with taking up an additional 301,301,069 shares. The company will issue 1.8 million Shares and take in J$4.08 billion in gross proceeds.
The allocation of the issue will result in existing shareholders and Derrimon team members receiving 51.63 percent of their application. Key Investors will get all of their applications, Lead Broker’s Clients 83.72 percent and Non-Reserved Share Applicants (General Public) 39.15 percent.
Proven Investments upsized of the Additional Public Offer (APO) of ordinary shares to a maximum of 134,124,037 units with applications totalling 154,231,234 shares, for an oversubscription of US$4.3 million. Proven states that 4,148 applications were received, totalling just over US$34.5 million.
Applicants in General Pool and existing shareholders applicants in the pool will receive a full allotment, but Key Investors Applicants in this pool will receive 70.75 of the subscription amount.
Sygnus Credit Investments APO of ordinary shares was upsized to 240,887,900 Shares, reflecting a 54 percent upsize to the maximum allowed. The issue pulled around US31 million for the company.
Derrimon expands with APO funds
Derrimon Trading is spreading its wings, to New York, with the recently announced agreement to acquire control of the Brooklyn-based operations of FoodSaver New York, Inc. a wholesale food distributor and Good Food For Less, LLC, a speciality supermarket.
The acquisition will be done through a New York based, Derrimon subsidiary, Marnock LLC, which will acquire the Brooklyn-based operations as a going concern. “The overall consideration upon completion is expected to be valued between USD$8.9 million and USD$9.1 million,” Derrimon states. The amount translates to J$1.3 billion.
The purchase will be funded from proceeds of a current additional public offer, to raise around J$3.5 billion and a 20 percent minority interest in Marnock.
Derrimon expects the deal to be completed in the first quarter of this year. According to the prospectus, the businesses being acquired generated revenues of J$5.1 billion with 6% or J$311 million being converted into net income.”
Derrimon Trading reported flat revenues of $9.62 billion for the nine months to September over $9.53 billion reported for the similar period in 2019, with Gross Profit of $1.84 billion, increasing by $182 million and Profit before Tax of $316 million, up 25 percent or $61 million over 2019. ICInsider.com forecast is 16 cents per share for 2021, with the current PE Ratio at 15 times earnings and suggesting the stocks is fairly priced on the basis that the existing business remains substantially intact along with the new business being acquired. The company has just two years left of the tax concession for listing on the Junior Market.
The company is offering if fully subscribed the gross proceeds will be approximately J$3.50 billion, of which approximately J$205.25 million is expected to be used to pay transaction costs. The net proceeds from the invitation are expected to be J$3.29 billion. If the option to upsize is fully exercised the maximum proceeds is J$4.22 billion and result in the total shares in issue at 4.2 billion based on the initial share offer.
The shares are priced at $2.20 for existing shareholders and $2.40 for the public. Derrimon has grown by using a high level of borrowed funds, which is a highly risky way for funding expansion. $1.1 billion of the APO proceeds will be used to fund the New York businesses’ acquisition. $1.2 billion will be used in reducing existing loans, with $500 million to be used in the expansion of a retail location in Clarendon and working capital.
There are positives and negatives with the acquisition and capital raise. The successful raising of fresh capital will better balance the company’s leveraging that was out of line with safe levels. The amount slated for debt reduction will save around $90 billion per year before taxation and will help to improve the profitability of the group. The group can reduce some areas of cost with the larger size and will have greater opportunities for cross-country sales, thus expanding sales and profit. Overseeing managing a new business overseas is often more difficult than it may appear at the start.
The current share offer closes on January 26 and the stock last traded at $2.38 on the Junior Market of the Jamaica Stock Exchange.