FosRich IPO fair value

FosRich Company is heading to the capital market to raise $200 million from sale of just over 100 million shares at $2 each. The general public have been allocated 10,070,111 units, Stocks and Securities, broker for the issue is allocated 50 million units, key partners and staff have 40,385,000 allocated to them.
Reserved shares, if not fully taken up, will be available to the general public. The issue opens on Monday December 4 and is scheduled to close on December 11 with the minimum application of 5,000 Shares.
The Board intends to use the proceeds of the invitation in order to expand the capacity of the Company to provide electrical and energy solutions to its customers and in particular, to expand its ability to provide industrial products. The Company will also pay down existing loans and pay the expenses of the Invitation.
The company has built up a name for itself by way of advertising through electronic media and will benefit further from the increased publicity that will be generated by listing.
Importantly, the company currently has interest debt of $300 million and carries a high level of inventories of just under a year’s supply. In 2014 the company booked through its equity reserves a mark down of $129 million for impairment of inventory and receivables. For the nine months to September this year gross cash flow $50 million before working capital needs and after it ended at a net outflow of $9 million. With those numbers bank financing for expansion is going to be challenging. The capital raised should go a long way in easing this constraint.
The Company major Jamaican wholesaler and retailer of a wide range of electrical, lighting and energy products, opened in November 1993 and it has operated at its flagship location 77-79 Molynes Road for over 24 years. The location serves as the Company’s headquarters and comprises a 25,000 square foot area including warehouse and office space and showrooms. FosRich currently has a staff complement of 84. Apart from its head office in Kingston, they also operates in Montego Bay and Mandeville.

Mark Croskery Managing director of Stocks & Securities brokers fro teh IPO speaking to Cecil Foster, Managing director of FosRich.

According to data presented in the prospectus the average annual growth in sales since was 15 percent and the average annual growth in gross profit over the same period was 20 percent.
Unaudited gross profit for the year to September 2017 was $360 million compared to $346 million for the same period in 2016, for an increase of $14 million. This improvement was mainly driven by improvements in selling prices, which compensated for the reduction in sales revenue by J$60 million to J$796 million compared to the same period in 2016 of J$856 million. The full year results should see the company generating sales of just over $1 billion and profit of approximately $40 million before taxation having made $31 million in pretax profit to September.
The historical record of profits are mixed with pretax profits at $42 million in 2012 rising to $60 million in 2013, in 2014 they made $43 million, just $10 million in 2015 helped by bad debt recovery of $10 million and $35 million in 2016.
The directors are, Marion Foster, Steadman Fuller, Ian Kelly, Peter Knibb and Rosalyn Campbell.
Based on estimated earnings for 2017 of $40 million the shares are priced at 20 times 2017 earnings but when viewed against 2018, that will benefit from lower interest cost and some pick up in sales, profit could reach $108 million or earnings of 22 cents per share. Based on 502 million shares in issue after the IPO, the PE would be 9, on this basis, the price could deliver a 120 percent rise in 2018. The stock is priced at just over 2 times net book value and would be one of the lower valued Junior Market company based on net asset value.

About IC Insider.com