The response to the Honey Bun initial public offer (IPO) has been described as ‘encouraging’ despite mixed recommendations made by analysts.

Yesterday, Mayberry Investments Limited (MIL), lead brokers of the IPO, reported that investors had already expressed a lot of interest in purchasing a stake of the 28 year old family owned food manufacturing business.

“While we cannot give out numbers at this stage, we can say that our client support of the Honey Bun IPO has been encouraging,” Dennise Williams, vice president, marketing at MIL told the Business Observer yesterday ahead of the opening.

Honey Bun is seeking to raise $50.8 million through the issue of 18 million shares to investors, 9.4 million of which is made available to the public at the offer price $3.00 each. The company intends to use the funds raised for strategic growth initiatives including improving export and distribution capabilities and technology integration.

The Board of directors of the company have signalled their intention to distribute an annual dividend of not less than 20 per cent of after tax profits, providing the company does not have need to reinvest. Sales in Honey Bun’s products have grown at an average rate of 21 per cent per year. Within the last five years, Honey Bun has also seen significant revenue growth through product development and increased market share.

Yesterday, one day ahead of the opening of the offer, Scotia Investments recommended that investors not participate in the IPO, citing illiquidity among the concerns, while Stocks and Securities Limited, on Monday, recommended that investors buy given the success of past listings on the Junior Market and the low interest rate environment.

“A major concern for the Honey Bun stock will be the illiquidity that is expected to accompany an issue with such a small publicly available balance of 9.4 million units or 10 per cent of the total outstanding. This factor combined with the projected price and high comparables yields the recommendation that investors not participate in this offering,” Scotia Investment senior financial analyst Najja Daley recommended.

However, Daley conceded that growth in Honey Bun should continue into the medium-term following the listing and the 10 year tax break that should result. “In this context we have projected an increase in earnings per share over the next year to 22 cents,” the analyst said.

Analysts at Stocks and Securities Limited (SSL), on the other hand, recommended a buy, even though Honey Bun’s Price/Earnings ratio of 13.09 times exceeds the industry average of 10.32 times.

“In the current low interest rate environment, investor interest and success of all the JSE Junior Market listings has been unprecedented. Continuing on this strong demand, Honey Bun’s IPO is expected to be successful, despite its above average P/E ratio, given the aforementioned points as well as the size of the offer. Therefore SSL recommends Honey Bun at the offer price of $3.00 per share.”

Industry participants to which Honey Bun’s P/E ratio was compared included Red Stripe, Jamaica Broilers, Salada Foods, Seprod Limited and Lasco Manufacturing. SSL noted that there is limited upside potential for the stock if the company is unable to produce results to support its valuation.

When asked to comment on the recommendations, Williams noted that the decision would be left up to the investors.

“In regards to comments regarding the IPO, our competitors have done their analysis and we too have done analysis and have disseminated our opinion to our clients,” she said.

A listing on the Junior Market of the Jamaica Stock Exchange (JSE) qualifies Honey Bun for a 10-year break on corporate taxes. Years one to six will see the company getting a 100 per cent tax break, while in subsequent years the company will be subject to half the prevailing tax on corporate profits provided it remains listed for 15 years.