IC Buy Rated Spur Tree IPO a big buy

Spur Tree Spices Jamaica’s prospectus for its Initial Public of 335,391,848 ordinary shares at $1 each is now released to the public for subscription with the opening date of December 29, with just about 180 million units available for subscription by the general public.
Overall 335 million shares are being sold in the offer but 135 million are reserved. Proceeds will be used to pay the Invitation and listing expenses and the remainder to go to the Company to be used for the repayment of debts and to facilitate business expansion. The total Invitation and Listing Expenses should not exceed $25 million. The total debt to be repaid from the proceeds raised is $169 million, broken down as a payment of $157 million to GK Investments and $12.5 million to reduce Directors’ Loans.
Shares will be issued on a first come basis. If the Invitation is oversubscribed, the Company reserves the right to allot shares to applicants on a basis to be determined by it in its sole discretion, including on a pro rata basis. In the event the Invitation is oversubscribed, the Company in consultation with the arranger and lead broker reserves the right to make adjustments to the basis of allocation to ensure fair and equitable allocation.
The company is in operation for 15 years in Jamaica and operates out of a 20,000 square feet manufacturing facility at Garmex, on Marcus Garvey Drive in Kingston. The company specialises in production, distribution and the sale of Jamaican seasonings and sauces, for retail and foodservice markets.
Revenue grew 22 percent over the prior year to $701 million and at a compounded annual growth rate of 25 percent from $290 million in 2016. The increase in 2020 came from improved product placement and the expansion to new markets, with approximately 95 percent from the export markets the company stated.
The gross profit margin improved from 25.1 percent in 2019 to 26.7 percent in 2020. For the nine months to September, this year’s gross profit margin ended at 28.8 percent. During the 2016 to 2020 period, gross profit margin exceeded 25 percent, with a range of 25 to 38 percent.
Profit before tax rose 52 percent to $82 million, from $54 million in the prior year. In each of the 5 years under review, the Company increased its profit before tax each year from $21 million in 2016 to $82 million in 2020, a five-year compounded annual growth rate of 40 percent.
Results to September 2021 show a profit of $116 million from revenues of $834 million suggesting that the full year should see a pretax profit of $155 million. Gross cash flow amounts to $115 million for 2020 up from $57 in 2019.
Return on average equity at the end of the 2020 financial year was a rich 47 percent after tax and seem set to rise in 2021.
The company’s products are available in Jamaica, the United States, Canada, the United Kingdom, Cayman Island, Costa Rica and Australia through several distributor outlets. While the Company is active in the local market through its various distribution channels, its major focus from inception has been and continues to be the export market. There are more Jamaicans, and persons of Jamaican descent, residing outside the country, who value that special connection with home whether through music, food, or other forms of cultural authenticity.

“Our export sales and marketing strategies are geared to satisfying the needs of the Jamaican diaspora who now make up our largest customer base. However, in recent years, there has been an expansion of the demand for Spur Tree products in the overseas space to include non Jamaicans of all different races and ethnicities seeking an authentic Caribbean food experience. Our products are sold in supermarket chains such as Shoprite, Food Bazaar, Food World, Western Beef, Presidente and Extra among others in the United States, as well as in the largest foodservice cash and carry store in the United States, Restaurant Depot/Jetro. Our products are also prominently showcased in major chains in Canada such as Loblaw’s and Sobeys,” the company stated in the prospectus.
“Spur Tree recently completed the purchase of Exotic Products Jamaica (Succs.) Limited (“Exotic”), an ackee factory in St. Thomas. Ackee is a highly demanded strategic product in our export markets and the Company plans to rationalize the operations of this newly acquired entity to double production over the next two years. This, combined with our plans to expand and grow the current Spur Tree product range, while expanding current markets both locally and overseas and accessing new markets should significantly improve our sales and profit performance in the coming years”, the company stated.
Issued shares at the date of this Prospectus total 1,341,567,396 and after the IPO the issued shares should climb to 1,676,959,244 and the total equity capital will rise to around $600 million from $275 million at the end of September. Current assets amounted to $357 million and current liabilities at $221 million and cash on hand of $56 million.
Earnings per share should end the year at 11.5 cents before taxation and puts the PE at an attractive 8.7 times earnings and below the market average of 14.4 currently. IC Insider.com projects 18.5 cents earning for 2022 from a profit of $300 million at a PE of 5.4 times 2022 profit, which means lost of profitable trades are baked in barring any major negative development.

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