Eppley IPO price equal to book value - Scott

Published: Friday | July 19, 2013 Comments 0
Nicholas Scott, managing director of Eppley Limited, formerly known as Orrett and Mussion Investment Company. - File
Nicholas Scott, managing director of Eppley Limited, formerly known as Orrett and Mussion Investment Company. - File

Marcella Scarlett, Business Reporter

The J$377 offer price for shares in Eppley Limited is meant to dissuade speculators, according to Managing Director Nicholas Scott.

The stock will become the most expensive listing on the Jamaica Stock Exchange, if the initial public offer (IPO) is successful. Currently, the most expensive stock on the market is the cross-listed Guarding Holdings at J$270.

It is also to become the highest price listing in the 44-year history of the exchange, which tells the Financial Gleaner that among those coming closest was the PanCaribbean preference listing at J$200 per share in 2008.

The Eppley IPO, which opens for subscription on July 22, aims to raise J$82.56 million from 218,999 shares, only 73,000 of which are available to the general public. The company aims to list on the JSE Junior Exchange.

Scott said the company's value was more relevant to prospective shareholders than the price per share of its stock. In Eppley's case, "it values the business at exactly 1.0x its book value," he told the Financial Gleaner.

"To the extent that the price per share has any impact at all, we hope that it diminishes the interest of speculators and increases the likelihood that all investors in the business are aligned."

Eppley Limited is controlled by the Musson group through two of its subsidiaries. The company was previously known as Orrett and Musson Investment Company.

It is owned 51.97 per cent by Musson Investment; 35.38 per cent by ATL Pension and 12.65 per cent by General Accident Insurance Company.

Under the structure of the Eppley IPO, Stony Hill Capital Limited (SHCL) will become the third-largest shareholder with a 15.28 per cent stake, while the existing owners' holdings will dilute to 37.68 per cent for Musson Investment, 25.65 per cent for ATL Pension and 9.17 per cent for General Accident. The public will also hold 9.17 per cent.

SHCL is a creditor to Eppley to which it made a loan of US$1.1 million at six per cent in February. A portion of the loan - equivalent to J$45.9m - will convert to equity under the IPO for which SHCL will get 121,666 shares, amounting to a 15.28 stake.

Scott declined comment when asked about the shareholders and business operations of SHCL, which is registered offshore in St Lucia and is identified in the prospectus as an affiliate of Eppley Limited.

SHCL will have the right to nominate one director to the Eppley board, as will General Accident, ATL Pension and any other shareholder with 15 per cent holdings or more; while Musson Investment may nominate up to four directors. Eppley is currently chaired by Dr Nigel Clarke.

Proven Wealth Limited has been appointed lead arranger and sole selling and listing agent for the IPO. Proven Wealth CEO Chorvelle Johnson redirected requests for comment to Scott.

Eppley manages a portfolio of loans, leases and other commercial credit products marketed at corporate and professional customers.

The company has a capital base of J$101 million, reported net interest income of J$50 million and net profit of J$15 milion in 2012, according to its audited financial statements. Total assets amounted to J$463 million.

Unaudited statements dated April 2013 indicated expanded capital of J$113 million but a diminished asset base of J$271 million due to a dramatic fall in loan receivables. It had no intangible assets. Net profit at year-to-date April was estimated at J$12 million.

Eppley held J$158 million of liabilities in April compared to J$362 million last December.

The IPO will increase Eppley's issued shares to 796,249 units at the close of the offer.

Scott said the ratio of 1.0 times book value was agreed to since the objective is to price the stock at the company's intrinsic value.

"Immediately following the IPO, Eppley's balance sheet will consist of a portfolio of cash, loans, leases and other financial assets. As a result, right after the IPO its net asset value, or book value, will initially approximate its intrinsic value," he told the Financial Gleaner.

"While this measure likely undervalues Eppley, since it places no value whatsoever on its future growth prospects - and we believe that Eppley's intrinsic value will increase in the future - we believe that book value is a good approximation of intrinsic value at this point," he said.

Additionally, Scott said existing investors in Eppley invested at book value and that it was only appropriate to offer shares to the public on those same terms.

marcella.scarlett@gleanerjm.com


 

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