Companies are beating a hasty push to get listed ahead of the change in tax regime for junior market companies. The latest to do so is Medical Disposables & Supply Limited that hits the road with the opening of its IPO on December 13.
The Company invites Applications for up to 63,157,895 Shares in the Invitation. All Shares, including the Reserved Shares, are priced at $1.83 per Share. The Invitation will open at 9:00 a.m. on the Opening Date, Friday 13 December 2013 and will close at 4:00 p.m. on the Closing Date, Friday 20 December 2013. There are 18,096,060 Reserved Shares in the Invitation that are initially reserved for Priority Application from Staff and Key Partners 5,464,481 and Mayberry Clients 12,631,579.
Minimum fundraising | The minimum amount which, in the opinion of the Directors, must be received by the Company is $96.5 million. The offer looks interesting as there should be some initial price gains after listing even though not much is known of the company by the wider public.
Profits | The unaudited results for the first 7 months of the Company’s current financial year to October 2013, show an 18 percent increase in revenues over the same period in the prior year, increasing to $508 million. The Profit before tax outturn was $42 million, a 127 percent increase over the same period in 2012. This puts pretax earnings around 35 cents per share with 200 million shares outstanding and a PE of 5.3 times current year’s earnings. Adjusting for tax for the period before going public, the PE ratio is around 7 times but by the following year with all the profit being tax free the PE would drop to around 5 assuming earnings are basically flat that could result in a price appreciation in 2014 around 40-50 percent.
The new shares are likely to create some dilution in per share earnings initially, as the rate of return on equity is likely to be around 37 percent for the year ending March 2014. Paying off loans, which is one of the objectives for the funds being raised, will yield a lower return on the fresh capital.
Profit before tax declined by $11.8 million in financial year 2010. The Directors consider that the Company began to realise the benefits of an expansion that was executed, as well as its new pharmaceutical distribution relationships, in financial years 2011 and 2012 when Profit before tax increased by $23.5 million moving from $7.4 million to $31 million and $19 million to $50 million in 2012.
Revenues | Revenues moved from $289 million in 2010 to $506 million in 2011, a 75 percent increase and to $724 million in financial year 2012 and increase over 2011 of 43 percent. The rate of growth in sales has slowed and profit growth is also likely to slow down. The company needs strong and sustainable growth levels to justify investors picking these shares ahead of others that are better valued currently. From all indications based on the comparative valuation of other listed stocks, investors are likely to have to wait on the market rally to deliver above average growth in the stock price in the medium term.
Finances | High receivables of $186 million, just under 3 months of sales and inventories are spots of bother resulting in high borrowings of $153 million as of March, versus shareholders’ equity of $152 million.
The company | The Company is a distributor of pharmaceutical products and disposable medical supplies. When it began trading, the it specialised in medical and hospital supplies and disposable items, such as surgical masks, gloves, tubes, gauze, and adhesive and other bandages. Over the years it expanded into the distribution of pharmaceuticals and health and personal care items and other consumer goods. The Company is a co-distributor of the GlaxoSmithKline Jamaica, Dr. Reddy’s, and Bunny’s pharmaceutical and healthcare product lines. It also distributes general consumer items inclusive of complementary beauty, personal care and household products. In that regard, the Company is a sub distributor for Cari-Med Limited, Kirk Distributors Limited, Consumer Brands Limited, and Smith Russell and Company Limited, among others.
The Company is centrally located in a commercial complex in the mid-town industrial area of Kingston. It currently services over 1,100 customers across the island, including pharmacies, hospitals, medical practitioners, health centres, radiology units, nursing homes, medical laboratories, clinics, health food stores, bakeries, hotels, commercial institutions, schools, spas, sports teams and walk-in customers.
Directors | The Company was founded by the Boothe family 15 years ago in Kingston. Myrtis Boothe, Managing Director, provides the Company with its strategic direction and has than 20 years of sales and distribution experience in the pharmaceutical industry.
The directorship includes, Winston Boothe (Chairman), Myrtis Boothe (Chief Executive Officer), Kurt Boothe (General Manager), Nikeisha Boothe (Marketing), Dr. The Hon. Vincent M. Lawrence O.J., Dr. Dahlia McDaniel and Sandra Glasgow.
Use of proceeds | The proceeds of the offer is slated for expansion of the company’s existing product ranges, expansion into new product ranges and underserved niche markets, retirement of bank debt and directors’ loans and balances and pay for the expenses of the IPO, estimated not to exceed $9 million.
Short term gains are possible, but longer term growth and increased profits will come from the quality of management’s execution of the strategies and the maintenance of good relations with suppliers and customers. The suppliers, whom they represent, is critical as a loss of any major ones could negatively affect profitability in the short to medium term.
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