Sat | Oct 21, 2017

NCBCap pans Berger bid

Published:Friday | September 22, 2017 | 12:00 AMSteven Jackson

​NCB Capital Markets Limited is recommending that minority shareholders wait for a better offer from the Trinidad company seeking to acquire the outstanding Berger Paints Jamaica shares.

NCBCap says the offer price of $10.88 is below the stock's intrinsic value, which it estimates to be within a range of $11.42 to $11.62.

"Unlike other takeover bids in the market, what is also absent from this transaction is a premium on the intrinsic value to incentivise shareholders to sell," said NCBCap in a circular to clients. "As such, investors may be better off maintaining their current position until a better offer is presented or holding the stock for the long term," the brokerage said.

NCBCap, however, cautioned that investors who reject the offer take the risk of holding an illiquid stock in the event that ANSA Coatings International Limited is able to acquire 80 per cent of the outstanding shares of Berger Paints. At that level of ownership, the company can seek a delisting of the stock.

July takeover

ANSA McAL Group, through ANSA Coatings, took over the regional assets of Berger NCBCap estimated Berger Jamaica's fair value using a two-stage dividend discount model, and its relative valuation using the justified price-to-book method.

In the two-stage dividend discount model, the brokerage firm assumed an average dividend payout ratio of 35 per cent, short-term growth rate of 11 per cent, and long-term growth rate of five per cent. It resulted in an estimated value of $11.62 for Berger.

Under the justified price-to-book valuation method, NCBCap assumed a return on equity of 18 per cent, a growth rate of five per cent and a cost of equity of 10 per cent, which yielded a price of $11.42.

"The offer is therefore below our estimated intrinsic value and below the current price of $11.79," NCBCap concluded.

Director's okay offer

On the weekend, the directors of Berger Paints Jamaica recommended that minority shareholders accept the takeover offer from new owner ANSA Coatings, whose bid for the outstanding shares, representing 48.99 per cent of the company, was made at nearly a one-third discount on the prevailing market price.

ANSA Coating has said the bid price replicates the value placed on the holding under the deal completed in July to acquire the regional holdings of Berger Paints. The offer remains open until the newly extended date of October 9.

Berger Jamaica traded at $15.81 on the day prior to the mandatory takeover offer from ANSA Coatings. The stock had been rising constantly and began trading above $10 towards the end of January. It peaked at nearly $24 around midyear, but has fallen back to around $11.

Among the minority owners, the largest blocks of shares are held by Sagicor Pooled Funds, 10.4 per cent; and Ideal Group, just under 10 per cent. Neither have signalled whether they plan to accept or reject ANSA's offer.

Scotia Investments Jamaica Limited is lead broker for the transaction.

business@gleanerjm.com