Paramount stock seen as good buy for risk-takers

Published: Wednesday | December 26, 2012 Comments 0

Correction & Clarification

The story titled "Paramount stock seen as good buy for risk-takers" wrongly identified Hugh Graham as a member of the Board of Directors of the Spectrum Management Authority. Graham was appointed a director in February 2003 but resigned in 2007. We regret the error

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Paramount Chemicals Jamaica raised J$75 million from its initial public offering, which has cut founder Hugh Graham's ownership stake to 80 per cent.

The offer was more than six times oversubscribed, according to a notice posted by the lead broker Mayberry Investments to the Jamaica Stock Exchange last Thursday.

JMMB Group analysts meantime gave the thumbs up to the stock for risk takers, saying it would likely pay strong dividends, but cautioned that the company's performance might be subject to the vicissitudes of the local economy.

"Investors interested in this company will have to be willing to endure the possible lacklustre performance of the local economy," says the JMMB analysis.

"The company will benefit from the tax break associated with listing on the Junior Stock Exchange and, as such, is likely to distribute 25 per cent of net earnings to potential shareholders. Against this background, this stock is recommended for investors with a medium-to high-risk profile."

JMMB said in its research note ahead of the offer that the IPO at J$2.43 was fairly priced.

The 20 per cent holdings relinquished by Graham will be allocated as follows: 11.14 per cent to the public, 5.41 per cent to key partners, 2.0 per cent to board applicants, 1.0 per cent to Mayberry Investments Limited, the broker of the IPO, and 0.45 per cent to employee applicants.

Paramount will list on the JSE Junior Exchange. It's the tenth junior IPO to be brokered by Mayberry.

The company is known locally to the construction sector as the distributor of the French-made SIKA line of construction products and admixtures. The products were recently used in the construction of the new Digicel building in downtown Kingston, and the Falmouth port, the company stated in its prospectus.

Gary Peart, chief executive officer of Mayberry, stated that the success of the IPO signified the continued "vibrancy of the local capital markets". To date, Mayberry has brought 10 companies to list on the Junior Market of the Jamaica Stock Exchange.

Paramount holds some J$132 million in equity and since 2008 has more than doubled its annual sales to J$613 million, due in part to its securing the distributorship for SIKA industrial chemicals in 2010.

Paramount recorded net profit of J$14 million from J$242 million in revenues over five months ending October 2012, or 16 per cent higher than a year earlier at the distributor.

For its financial year ending May 2012, Paramount made some J$53.3 million from J$613 million of revenue, or 20 per cent higher profit over year-earlier levels.

Paramount operates within Kingston from an 18,000-square-foot warehouse and administrative office, over one acre of outdoor storage yard space, nine trucks, two forklifts, and ample machinery and equipment to more than handle its daily operations.

IN THE '80s

In the 1980s, Graham was a sales agent for international chemical manufacturers and distributors May and Baker Limited and Rhone Poulenc Inc, but later leveraged that experience to launch into business. The prospectus indicates that he formed Paramount in 1991 to operate initially as a manufacturers' representative and commission agent, then expanded to include warehousing and distribution.

Graham currently sits on several public-sector boards including National Water Commission, Rural Water Supply Limited, Jamaica Urban Transit Company and its subsidiary Jamaica Ultimate Tyre Company, and Spectrum Management Authority.

Aided by the IPO proceeds, Paramount said it would increase its manufacturing and blending capacity, improve the existing plant and processes, expand the SIKA line of construction products, and establish complementary facilities.

business@gleanerjm.com

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