FosRich could surprise

FosRich initial public offer of shares opens next week Monday but is getting mixed views in the financial market, partly with similar type reception Access Financial got when it went public in 2010. Access confounded the skeptics and went on to be one of the best performers on the market.
While one does not expect FosRich to perform close to what Access did overtime, it could nevertheless surprise many on the upside in 2018, with not many shares being sold to the general public.
Some seasoned investors are letting this one pass them by. Questions are being asked about an array of issues reflected in the financials.
Why are inventories so high? growth in revenues is inconsistent with a drop in sales on the cards for 2017 and questions about the true quality of receivables. The company made a $20 million provision for doubtful receivables in 2014 of which $10 million was recovered in 2015. For some, the inventories of $580 million at September is the most concerning, with the view that there could be another big a write off as occurred in 2014 when provision was made for $109 million. There is a question as to the rationale for three outlets outside Kingston with two in Montego Bay.
Management seems fully conversant with the issues that need addressing and from all indications are at work to deal with them.
Apart from the raising of long term equity capital by way of the public share issue, that will provide badly needed working capital management is to roll out of the industrial products line later in 2017 and the directors anticipate a profitable end to the fiscal year, unlike the loss in the final quarter of 2016.
FosRich increased gross profit margin for the year to date to 45.2% from 42% in 2016, the Directors are hopeful of maintaining or increasing that level towards the end of the current year, 2017. According to Cecil Foster, Managing director, they are aiming for 50 percent with a focus on the 150 fastest moving items. Their partnership with Phillips, Siemens for electrical equipment and parts and Nexans Brasil for distribution of cables will allow them to source products directly from factories rather than through middlemen.
Addressing the issue of excess inventories, Foster stated that they are aware of the issue but admitted that software issues resulted in an increase beyond the norm. Cash flow issues has forced management to take step to reduce the amounts tied up in stock. At September this year the amount in inventories of $580 million is down from $625 million in 2016. According to Foster within 8-9 months it should be in the rage of 6 months of cost of sales, if achieved it would release more than $200 million in cash. Different strategies are being employed to push sales of the slower moving items and include special deals at reduced prices, targeting large projects and possibly longer credit terms. According to Foster, this area is one for attention a regular at their monthly board meeting.
Debt financing has been high with Interest cost at $47 million in 2016 on loans of $335 million. Rates on leases were at 13.5-15 percent. After the issue closes Stocks and Securities will be going to market to raise $200-300 million in bonds to retire the bank debt and fund expansion.
Foster confirms Mathew Williams of SSL comments “that the target is to double sales within two years” and indicated that the target for 2018 is 30 percent. Cost should be under control in 2018 as the company focuses on this area as well.
There are some observations that investors ought to note. A number of companies enjoyed big sales bounced shortly after listing as name and product recognition increases. Example of these are Jetcon Corporation, Stationery and Office Supplies, the rigor that monthly board meetings will provide additional governance rigor to get more out of the existing operation. Peter Knibbs the director of Finance formerly of the Pan Jam Investment group, with years of financial experience has been playing a major role in getting the company to focus on some critical areas in order to right a drifting ship.

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  1. […] for sale at $2.50 each. The offer opens on December 7 and is scheduled to close on December 21. With FosRich and Wisynco opening next week as well it could result in record of 4 IPOs being opened within the […]