tTech IPO JCSD fee breaches prospectus terms
The imposition of JCSD processing fee is not only untidy, it is in breach of the terms of the prospectus and must be returned to those investors who paid it. There are no references to JCSD processing fee in the prospectus and under the heading of Statutory and General Information items 6 of the prospectus states, “All Applicants (including Reserved Share Applicants) will be required to pay in full the Subscription Price of $2.50 per Share, subject to discounts, where applicable. No further sum will be payable on allotment”. Most junior market IPOs, are highly anticipated, with several issues closing shortly after opening, leading most investors to apply for shares ahead of the opening day and so ensure that their application are on a timely basis. On Tuesday ahead of the opening of the tTech issue, a statement appeared on the website of the Jamaica Stock Exchange, to indicate that the “application form found in Appendix 1 of IPO Prospectus did not include any mention of the JCSD processing fee of J$134.00 (inclusive of GCT) that each application would be subject to. As such, the application form has been updated to include such commentary”.
Most persons would not have been aware of the charge and so put in their applications without it while some included it, having seen the change. This places some applicants at a disadvantage small though it may be. Some investors are shocked that, the company and the broker did not absorb the charge for the cess and that the Financial Services Commission and the Jamaica Stock Exchange have permitted the late imposition of it. The charging of the JCSD processing fee inclusive of GCT is an irritant for investors and there are few solid reasons why companies are not treating the cess as a part of the cost of listing rather than asking investors to pay for it directly.
tTech is BUY RATED for strong growth
tTech is going to the capital market this month to raise approximately $50 million by the issuing for subscription 25,652,000 shares to the general public and special interest group with the general public being asked to pay $2.50 each for 16.4 million being made available to them.
IC Insider assessed the company’s record and forecast increased earnings for 2016 and 2016 and accorded it the BUY RATED honour.
Edward Alexander, Chief Executive Officer, in an interview with IC Insider stated that the staff of the company indicates that they will all be taking up their full allotment, if so there will be few of these shares available for the public to acquire at the IPO stage.
The Company was incorporated in Jamaica on December 1st, 2006, and is a managed information technology (“IT”) service provider, or what industry insiders refer to as a “Managed Services Provider”. That is, for the most part, the Company’s main service offering is the management of other businesses’ IT infrastructure remotely and on a pre-paid basis.
The company is growing at an attractive rate with revenues that are up 28 percent for the half year to June to $81.4 million versus expenses increasing 18 percent and only 14 percent when technical fees, services and products that are part of direct expenses are excluded.
IC Insiders’ forecast, based on continuation of good revenue growth, is for profit before tax for 2015 to end at $36 million or 45 cents per share and $27 million or 35 cents per share after tax and $64 million or 60 cents per share for 2016. This gives it a PE based on 2015 earnings before tax of 5.5 and for 2016 of 4 and compares with junior market stocks with PE of 8, with half of the market selling above the average, suggesting that the stock should enjoy a nice bounce over the next twelve months or less. The company has $51 million in cash and no borrowed funds with current liability of just $27 million, so why do they need to raise the funds? “Expansion into security services will require added equipment, software working capital for continued expansion” Alexander stated, in addition listing allows the staff to be part owners and benefit from future growth.
There are a number of positives for the company it is in a good growth industry with potential for regional expansion, the Grace Kennedy contract and relationship could provide them the experience to take on other large regional conglomerates. They are a service-based business with high gross profit margin which is a big positive and if growth continues at current levels would contribute to a big increase in profit. A lot of the business is recurring, providing stability to the operation. The founders’ vested interest will remain strong as they will still hold relatively large percentage of the company after the IPO.
Only about 15% shares being offered to the general public the stock almost guaranteeing that it will be in relatively short supply which could drive price up quickly after listing, this is especially so being the first tech company on the JSE.
Subscription opens at 9 am on December 16th, 2015 and closes at 4:30 p.m. on the December 18th, 2015, subject to the right of the Company to shorten or extend the time for closing. All completed Application Forms must be delivered to NCB Capital Markets.
tTech offer seems a buy
tTech a company most investors would hardly have heard about, will be going to the capital market this month, to raise approximately $50,263,900, by the issuing for subscription 25,652,000 ordinary shares to the general public and special persons related to the company at $2.50 each.
In reality only 16.4 million are allocated for the general public, a relatively small number. The Company that was formed in 2006 currently provides outsourced IT solutions to businesses currently in Jamaica. IC Insider’s preliminary assessment indicates earnings per share around 40 cents before taxation for a PE of 6.3 and would make the stock a buy.
The purpose of the offer is to provide working capital support to its operations and in order to allow the Company to augment its productive capacity and thereby to take advantage of new business opportunities as well as benefit from listing on the stock exchange and improve staff compensation by allowing them to buy the shares that are bound to increase sharply in price after listing.
The Company estimates that the expenses in the Invitation will not exceed $10 million. Subscription opens at 9 am on December 16th, 2015 and closes at 4:30 p.m. on the December 18th, 2015, subject to the right of the Company to shorten or extend the time for closing. If the Invitation is fully subscribed and is successful in raising $50,263,900, the Company will make an application to the JSE for the Shares to be admitted to the Junior Market. The company has been profitable with revenues growing at an attractive rate. The Company has adopted a dividend policy of paying 25 percent of profits each year.
All completed Application Forms must be delivered to NCB Capital Markets.
IC Insider will have a fuller report at a later date.