Analysis of Shakey s Pizza Initial Public Offering

Transcription

1 Volume 3, No. 43 DECEMBER 2016 Analysis of Shakey s Pizza Initial Public Offering Exhibit 1. Background of the Company Shakey s has been operating in the Philippines for 40 years. It started its first store in Metro Manila in Shakey s operates nationwide with a total of 177 stores, of which 106 are company owned and 71 are franchised. Shakey s is one of the leading operators of Fast Casual Restaurants in the country focused on casual family dining. Exhibit 2. The Offer Issuer: Shakey s Pizza Asia Ventures Inc. (SPAVI) Selling Shareholder: Arran Services Pte. Ltd. Financial Advisor to the Issuer: Evercore Sole Global Coordinator and Sole Bookrunner: Deutsche Bank AG, Hong Kong Branch Joint Lead Managers and Joint Domestic Underwriters: BDO Capital & Investments Corporation and First Metro Investments Corporation Selling Agents: PSE Trading Participants The Offer: Offer of up to 306,000,000 firm shares, consisting of up to 104,000,000 shares to be offered by the company and up to 202,000,000 shares to be offered by the selling shareholder together with an offer of up to 45,900,000 Optional Shares by the Selling Shareholder pursuant to the overallotment option. Page 1 of 15

2 International Offer: Up to 214,200,000 Firm Shares (or 70% of the Firm Shares) are (subject to re-allocation as described below) being offered and sold outside the Philippines to persons outside the United States in reliance on Regulation S. The Optional Shares will form part of the International Offer. Domestic: up to 91,800,000 Firm Shares (or 30% of the Firm Shares) are (subject to reallocation as described below) being offered to the Trading Participants and retail investors in the Philippines at the Offer Price. Out of the 91,800,000 Firm Shares offered to the PSE Trading Participants and retail investors in the Philippines, up to 61,200,000 Firm Shares (or 20% of the Firm Shares) are (subject to reallocation as described below) being allocated to all of the PSE Trading Participants at the Offer Price. Each PSE Trading Participant shall initially be allocated approximately 463,600 Firm Shares and subject to reallocation as may be determined by the Joint Lead Managers and Joint Domestic Underwriters. Based on the initial allocation for each Trading Participant, there will be a total of 4,800 residual Firm Shares to be allocated as may be determined by the Joint Lead Managers and Joint Domestic Underwriters. Up to 30,600,000 Firm Shares (or 10% of the Firm Shares) are being allocated to LSIs. Each LSI applicant may subscribe up to a maximum of 1,600 Firm Shares at the Offer Price. Any Firm Shares allocated to the PSE Trading Participants and LSIs but not taken up by them, will be distributed by the Joint Lead Managers and Joint Domestic Underwriters to their clients, retail investors or the general public. Domestic Offer Shares not taken up by the Selling Agents, the Joint Lead Managers and Joint Domestic Underwriters clients, retail investors or the general public shall be purchased by the Joint Lead Managers and Joint Domestic Underwriters pursuant to the terms and conditions of the Domestic Underwriting Agreement and subject to agreement between the Joint Lead Managers and Joint Domestic Underwriters and the Sole Global Coordinator and Sole Bookrunner on any clawback, clawforward or other such mechanism relating to reallocation of the shares between the International Offer and the Domestic Offer. Offer Price: pesos per share Offer Period Local Small Investors Program (LSIP): Dec. 2-8, 2016 PSE Trading Participants Commitment Period: Dec. 2-6, 2016 Listing Date: December 15, 2016 Page 2 of 15

3 Exhibit 3. Investment Highlights Shakey s is the number one full-service pizza chain in the Philippines with a 58 percent market share, followed by Pizza Hut with a market share of 35 percent, while the remaining market is split by various pizza parlors. Shakey s is also the dominant player in the full-service restaurant industry with a 27 percent market share, while Pizza Hut and Maxx s Group trail with 16 percent and 11 percent, respectively. It has also been forecasted that the service pizza industry will grow faster over other food chains in the next 5 years. It is the 2 nd most popular brand in the Philippines under the fast food chain restaurants category after McDonald per survey of Campaign Asia Pacific in partnership with Nielsen to identify Top 1,000 brands in Asia. Acquired trademarks and licenses to operate the Shakey s brand in the Philippines and across Asia, Middle East, Oceana and Australia. Stores are located in strategic sites. Stores are also extensively represented through major urban centers and key islands in the Philippines. Operates on an asset light model. They lease and not own their stores enabling high financial liquidity. Long term leases in their store locations at attractive rental rates also lead to low rent to sales ratio. Presented in different store formats such as Legacy stores, Free Standing Stores, mall and strip malls, gasoline kiosks, enabling them to capture the diverse needs and preference of the market. Has multiple channels (dine-in, carry out, functions, online sales, and supercards) providing convenience and accessibility to its customers. Shakey s has a well established franchise model with an ROI of 3 to 4 years. Has excellent food safety and quality control process in place. Has a strong management team adding up to more than 100 years of experience in the food business. Page 3 of 15

4 Exhibit 4. Organizational Structure Exhibit 5. Board of Directors Director, Chairman of the Board: Director, Vice Chairman of the Board: Director, Vice Chairman of the Board: Director, Treasurer: Independent Director: Independent Director: Director, President: Christopher T. Po Ricardo Gabriel T. Po, Jr Teodoro Alexander T. Po Leonardo Arturo T. Po Paulo Campos Fernan Victor Lukban Vicente L. Gregorio Exhibit 6. Management Team President: Vice President: Finance Director: General Manager: Vicente L. Gregorio Manuel T. Del Barrio Armie M. Quintos Jorge Q. Concepcion Page 4 of 15

5 Corporate Secretary: Chief Human Resource Officer: Chief Information Officer: Genevieve U. Yu Jennifer V. Lapa Mauricio D. Franco, Jr. Exhibit 7. Use of Proceeds Do note, that the total loan from BDO is P5 billion. If they pay back P1.25 billion, there would be P3.75 billion in loans remaining from BDO. Additionally, Capital Expenditures amounting to 137 million will be used for commissary expansions and relocation of their corporate headquarters to 15km East Service Road corner Marian Road 2, Brgy. San Martin de Porres, Parañaque City, Metro Manila. They will be leasing the property for a term of 25 years. Ninety million will be allocated to the HQ with seventy million to be spent in the building and construction while the remainder to be used to purchase furniture and fixtures. Additionally, million pesos are allocated for working capital and potential acquisitions. The company has not identified any specific acquisition targets in the immediate future. Working capital expenditures include expenses in connection with maintaining our inventories, accounts receivables and other prepaid expenses. Page 5 of 15

6 Exhibit 8. Financial Highlights (2015 audited) A. Statement of financial position Page 6 of 15

7 B. Statement of Comprehensive Income Page 7 of 15

8 Page 8 of 15

9 C. Statement of Cash Flows Page 9 of 15

10 D. Breakdown of Revenues 1. For the statement of financial position (as of 2015): Assets stand at P2.66 billion composed of P1.24 billion in current assets, and P1.42 billion in non-current assets. PPE only amounted to 577 million pesos since the company s business model favors leasing rather than purchasing actual PPE. The company has P388 million in cash, 543 million in receivables, and 238 million in inventories. Total liabilities totaled P1.1 billion where P1 billion is current and 100 million is noncurrent. It doesn t pose much of a problem since as stated above, the company has 1.2 billion in current assets enough to pay off current obligations. With the IPO and majority of the proceeds being used to pay off debt, the company will deleverage and liability will significantly drop. Equity totaled approximately P1.6 billion, which is mainly because of Capital Stock amounting to P768 million and accumulated retained earnings totaling P829 million. 2. For statement of financial performance (as of 2015) Sales have constantly been growing. Sales for 2015 totaled P5.1 billion. A three-year compounded growth for sales is 8 percent. Gross margins remained to average at around 23 percent of sales. Page 10 of 15

11 Net Income amounted to P479.5 million which resulted into a net profit margin of 9.13 percent. Net income has grown at a 3-year compounded growth of 9.5 percent year on year. EPS in 2015 stands at 0.62 from an EPS of 1.16 in The drop in EPS was due to a significant increase in the capital stock of the company. 3. Revenues Revenues are mainly driven by sales amounting to P5.1 billion in Royalty revenues form a small portion of revenues amounting to million. This appears favorable since most of the company s earnings are generated by its core businesses, which means that this is recurring income, and that indeed, the company has a good market share as evidenced by strong and increasing sales. Exhibit 9. Financial Highlights (2016 unaudited) A. Statement of Financial Performance Page 11 of 15

12 It appears that this will be another great year for Shakey s. Income for the 6-month ended June 30, 2016 totaled P603 million. This is already 50 percent higher than last year s FULL net income of million. Upon further scrutiny, it appears that the growth was not driven by increased sales but by a significant increase in other income, from 32.7 million in 2015 to million in There is also a huge cut in expenses. From P606.5 million in 2015 to only P365.7 million in Do note that we cannot examine what is the source of the huge increase in other income as well as the drop in expenses as the financial snapshot given in the prospectus is unaudited, thus there are no supporting notes with regards to specific line items. B. Statement of Financial Position Assets have grown significantly from 2015 to There is quite a difference in the audited and unaudited statement of financial position of the company. Assets in the audited Financial Statement (FS) totaled approximately P2.66 billion while liabilities are at P1.086 billion. This creates an almost P6 billion difference in assets and P5 billion in liabilities. We are wondering though since most probably the difference was the P5 billion loan taken out from BDO in June 8, 2016 which will mature in We are wondering why the loan got reflected in the 2015 income statement when the loan was actually taken out in Equity also seemed to have increased by P900 million which may suggest that there was another significant placement in the company s capital stock. Page 12 of 15

13 Exhibit 10. Dilution If you invest in the Offer Shares, your interest will be diluted for each Offer Share you purchase to the extent of the difference between the offer price per Offer Share and the net tangible book value per Share after the Offer. Dilution results from the fact that the offer price per Offer Share is substantially in excess of the book value per Share attributable to the existing shareholders for their presently outstanding Shares. As of June 30, 2016, company s net tangible book value per Share was P=0.66 and net tangible book value per share based on our pro forma financial statements after giving pro forma effect to the acquisition of BMI, GGL and SIL was P=(2.81) ( pro forma net tangible book value ). Net tangible book value per Share and pro forma net tangible book value prior to the Offer represents total assets (less intangible assets and goodwill) minus total liabilities, divided by the total number of Shares outstanding. Without taking into account any changes in pro forma net tangible book value after June 30, 2016 other than to give effect to the sale of the Primary Shares at an offer price of per Offer Share and after deducting estimated discounts, commissions, estimated fees and expenses of the Offer, the pro forma net tangible book value per share after the Offer is P=(1.64). This represents an immediate increase in pro forma net tangible book value of P=1.17 per Share to existing shareholders, and an immediate dilution of P=17.22 per Share to investors purchasing Offer Shares in this Offer. The following table illustrates dilution on a per Share basis based on an Offer Price of up to P=12.90 per Offer Share assuming full exercise of the Over-allotment Option. Offer Price per Offer Share Net tangible book value per Share as of June 30, Pro forma net tangible book value per Share as of June 30, (2.81) Pro forma net tangible book value per share as adjusted after the Offer (1.64) Increase in pro forma net tangible book value per share attributable to the 1.17 Dilution to investors in the Offer (based on pro forma net tangible book value) Page 13 of 15

14 Exhibit 11. Post IPO Number of Shares Exhibit 12. Valuation Income for the 6-month ended June 30, 2016 totaled 603 million pesos. If we annualize this amount, we can expect Shakey s to earn roughly P1.2 billion this year. We want to take out the effects of the other income and the drop in operating expenses. If we do that, we are expecting Shakey s to earn roughly P800 million in Now, we cannot use a dividend discount model or a Gordon growth model to compute the value of this company yet since data isn t that reliable and complete. We will use a multiplier model instead. Using the company s post IPO number of shares totaling 1,531,321,053, earnings per share is computed as follows: = 800,000,000 / 1,531,321,053 = 0.52 Computing for the companies P/E ratio using a stock price of 11.26, Shakey s P/E ratio would be: Page 14 of 15

15 = / 0.52 = Now, is this cheap or is it expensive. We will take it further by comparing it with PSEi and with its peer companies in the industry annualized P/E Jolibee Foods Corporation (JFC) Max s Group Inc (MAXS) Philippine Seven Corporation (SEVN) Shakey s (PIZZA) AVERAGE By the figures above, Shakey s seem to be the cheapest compared to its industry peers. Fundamentally, the stock seems to be undervalued. Do note also that from what we ve heard, allocation is very thin among brokers. What does it mean? It means, the offer will be light and if most investors are not going to get allocations, the stock may move higher and faster as demand will outweigh supply. Comparing to the PSEi P/E of 18x however, stock is slightly overvalued. We hope we have shed some light with regards to this IPO offering. If you have any questions, feel free to contact us in the forums. To a data-driven trading and investing experience, Prepared by: Reviewed and Approved by: Nino Casono Analyst Stock Signals Philippines Jaycee De Guzman Founder Stock Signals Philippines Page 15 of 15