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.
tTech offer seems a buy
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[…] Tuesday. The offering was for 25.65 million shares to raise $50,263,900. Alexander disclosed that tTech picked up additional clients and garnered more business from existing ones after the IPO was […]
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[…] 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. The 2015 performance is better than that of the full 2014 financial year, when income was up 18 percent but profit fell 13 percent before taxation and 5 percent after tax. In 2013 revenues rose 35 percent and 5 percent in 2012 while pretax profits grew 62 percent in 2011, in 2012 by 21 percent and in 2013 by 38 percent. Alexander advised that they expect revenues for 2016 to grow around 15-20 percent, at the same level they estimated for 2015. “Growth continues to be strong at a robust level since the six months to June” Alexander said. 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. […]
My simple concern with t tech is this: why does the company have so much cash and cash equivalent on it balance sheet? It doesnt seem to me that the company need any working capital support. Yet, working capital support is the main reason given for raising money via IPO.
Also, this IPO will dilute current shareholder’s ownership, but one simple check showed that the amount of dividend paid out is more than half the fund to be raise via this IPO. Now if management was all for the maximization of shareholders wealth, i believe they would have plow back that money into the business.
With these two facts- exorbitant cash balance and high dividend payout- it begs the question, does the company has the growth prospect that most suspected it to have; adding to that the fact that receivables is growing at a faster pace that revenue since 2014- depicting and artificial mean of boosting revenue.
Thanks for your observations. Some of what you say is correct. Feed back from the company is carried in a fuller report we posted subsequent to the first article. That report indicates more specifically the reasons for going public. Yes the issue may dilute other shareholders, earnings, but they are the ones that see the benefit and decided to go. In addition whatever dilution there may be, will be more than made up for by the removal of taxation by listing on the junior market as well as the publicity that the listing will bring them. finally the company and shareholders now have a currency that will be worst substantially more than before and that is a stock that is liquid and worth a lot more than $2.50.