SSL invests big in Everything Fresh IPO

BY DENNISE WILLIAMS
Observer writer

Friday, May 18, 2018

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Everything Fresh Limited (EFL) is seeking to raise $390 million from the issue of 156 million shares at $2.50 each, with the offer opening tomorrow. Stocks & Securities Ltd (SSL) is taking up a significant stake in the company and offering around three per cent or 27 million shares of company to the public.

SSL CEO Lamar Harris noted, “The purpose of the IPO is the expansion of the company. The projections for EFL were solid because they have pretty solid engagements that needed expansion to complete. A lot of people don't know about EFL because they market business to business. And so, in the reserve pool are the EFL business partners from Jamaica and overseas who want to tie their business interests with EFL, and that includes us.

“We don't just do IPOs as a transaction. We are looking for companies that we take a vested interest in. There is a reason that Mark Croskery is sitting on the board. Just like FosRich, we believe in EFL. We don't list a company and leave it.

“For example, with C2W we were at the AGM (annual general meeting) on Saturday discussing a rescue plan. So we believe in creating value for investors. It's not a list-and-leave them attitude.”

EFL's business model is based on high inventory turnover of eight times per year and selling directly to the hotel industry as a basic outsourced kitchen. According to Matthew Williams, investment banking associate at SSL, “The supply chain begins in Miami through a related company and allows them to source products for the Jamaican tourism industry at a reduced cost. This is the secret to the success of Everything Fresh.”

Williams continued: “I would hope that Jamaican citizens are bullish on the tourism industry as it has been increasing year over year, and SSL is bullish on this industry. As the tourism industry grows, so do the revenues and profits of EFL. If you are bullish on tourism, you have to be bullish on Everything Fresh.

”In our analysis, we surveyed the hotel clients and the hotels love Courtney Pullen, the managing director of EFL. He handles sales personally and he is out in the field. This culture of sales and customer has resulted in loyal customers. The hotel industry loves his passion and, most importantly, they love his dependability. That is what has driven the expansion plans. It is the hotel that invited EFL to move with them into other Caribbean terriorities.”

Leo Williams, mentor of EFL, added that in the analysis of EFL, one should consider Caribbean Producers Jamaica as a benchmark.

“We note that recently the price earnings ratio of CPJ was 50 times earnings. And this company not only turns its inventory three times per year, but stores its inventory in massive warehouses in Montego Bay. Therefore, what investors have to consider is that EFL has a faster turnover and lower price earnings ratio than its benchmarked competitor.”

That said, there has been some pushback from investing experts on the IPO.

JN Fund Managers writes in their analysis of the company, “Despite EFL's robust and consistent sales growth, evidence of a sustained demand for their products, the company has struggled to translate sales growth into growth in profitability. In the prospectus for this IPO the company outlined several plans that it anticipates will serve to contain future expenses such as the installation of solar panels — a measure aimed at reducing energy costs. We believe these cost-cutting measures, the continued expansion of the company's customer network and the working capital support that will be provided by the proceeds of the IPO should translate to growth in profitability in the current and next financial years.”

JNFM further writes, “EFL is offering to investors approximately 156M (or 20 per cent of the total 780M shares) ordinary shares at a price of $2.50 per share. The IPO price represents a 42.98X price-to-earnings (P/E) multiple of FY 2017's pre-tax Earnings and a 28.08X P/E multiple of our projections for FY 2018's pre-tax earnings. The listing price also represents an 8.02X price-to-book (P/B) multiple of FY 2017 year-end book value and a 2.93X P/B multiple of our projections for FY 2018 year-end book value.

“Despite our expectations that EFL will manage to drive growth in profitability in the near term, we have concluded that based on our use of the P/E and P/B relative valuation methods, that EFL is being listed at a premium to fair value. Our estimated fair value of $1.73.”

Investing guru John Jackson writes on his ICInsider.com blog that, “The stock is richly valued and not priced to deliver much in short-term gains for new investors. On the assumption that sales would continue to grow at the pace 2017 over 2016, then profit could reach around $65 million excluding the impact of the IPO capital injection could have. At this level, earnings per share would be around 10 cents and would put the PE ratio at a rich 25 times this year's earnings. Net asset value is just 40 cents per share with the stock priced at 6.5 times book value that is higher than a large number of listings on the Junior Market and is being sold at a premium to the average listing by a big margin. The added capital could help lift the company's performance to new levels, delivering strong future earnings.”

According to the EFL prospectus, the proceed of the offer is to provide working capital support to its operations to allow for increase to its customer base and stock levels, thereby increasing revenues and build warehousing facilities and purchasing of equipment for storage and delivery of goods. The company intends to install solar system to reduce it energy costs. The company sees the opportunity to expand into other Caribbean countries.

The board of directors consists of Jennifer Elice Lewis, Vivette Elana Miller, Stephen Greig, Garret Samuel Gardner, Nesha Ann-Marie Carby, Donovan Hugh Perkins, Mark Hugh Arscott Croskery, Gregory Lancelot Pullen, Courtney Lancelot Pullen, and Melene Rose Pullen.

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